While investing in stocks, a very basic concept is to understand the value of a stock, and whether it is worth investing in the stock. The stock prices observed in the market are called the market prices of the stocks. Based on fundamental analysis and using equity valuation model, an investor will try to calculate […]
The analyst can use a variety of models to estimate the intrinsic value of equities. One such model is the Dividend Discount Model. Under this model the value of a stock is calculated as the present value of all future dividends from the stock. As you can see in the above video, the general form […]
Investors and stock analysts use a variety of valuation models to arrive at the fair value of stocks. In fact they will generally use more than one model with a variety of assumptions and arrive at a range of possible fair values. In this article we will briefly discuss three types of models, namely, discounted […]
We learned about how an analyst can value a stock using the dividend discount model, where the analyst considers the dividends investors expect to receive in the years to come. The idea behind this model is quite intuitive once you understand the concept of time value of money. One problem with dividend discount models is […]
Preferred stocks can be valued using the dividend discount model, as they usually pay a fixed dividend. Since preferred stocks have indefinite maturity, the DDM can be represented as: Let’s say that a company has issued $100 par preferred stock, and pays an annual dividend of $6. The required return is 9%. The value of […]
The Gordon Growth Model (GGM) is a variation of the standard discount model. The key difference is that the GGM model assumes the dividends will grow at a constant rate till perpetuity. If the current year’s dividends are D0, and the dividend growth rate is gc, the next year’s dividend D1 will be D0 = […]
This video demonstrates the valuation of stocks using GGM model with the help of an example in an excel sheet. The spreadsheets used in the video can be downloaded from this link.
We continue with our Dividend Growth Model and understand how the stock value changes with changes in the various inputs such as the required rate of return, and the dividend growth rate. The spreadsheets used in the video can be downloaded from this link.
In the previous videos we learned about how to calculate the current value of a stock using the dividend growth model. We can use the same model to calculate the stocks value at a future date. This video explains how to the stock price at a future date t. The spreadsheets used in the video […]
While calculating the value of a stock using the dividend discount model, an important input is the assumed growth rate. Analysts can estimate this growth rate using a variety of methods. Analysts can observe the historical growth in dividends of the company and assume a future growth rate based on this observation. Analysts can observe […]