Problem: Garrett Corp. has been going through a difficult financial period. Over the past three year, its stock price has dropped from $50 to $18 per share. Throughout this downturn, Garrett has managed to pay a $1 dividend each year. Management feels the worst is over but intends to maintain the $1 dividend for three more years, after which they plan to increase it by 6% per year indefinitely. Comparable stocks are returning 11%.
1) If these projections are accurate, is Garrett stock a good buy at $18?
2) How do you think the market feels about Garrett's management?