Common Stock Valuation

When an investor buys a share of common stock, it is reasonable to expect that what an investor is willing to pay for the share reflects what he expects to receive from it. What he expects to receive are future cash flows in the form of dividends and the value of the stock when it is sold. The value of a share of stock should be equal to the present value of all the future cash flows you expect to receive from that share. Since common stock never matures, today's value is the present value of an infinite stream of cash flows. And also, common stock dividends are not fixed, as in the case of preferred stock. Not knowing the amount of the dividends -- or even if there will be future dividends -- makes it difficult to determine the value of common stock