CHAPTER 13 DIVIDEND DISCOUNT MODELS

1. CHAPTER 13. DIVIDEND DISCOUNT MODELS . In the strictest sense, the only cash flow you receive from a firm when you buy publicly traded stock is the DIVIDEND . The simplest model for valuing equity is the DIVIDEND DISCOUNT model -- the value of a stock is the present value of expected dividends on it. While many analysts have turned away from the DIVIDEND DISCOUNT model and viewed it as outmoded, much of the intuition that drives discounted cash flow valuation is embedded in the model . In fact, there are specific companies where the DIVIDEND DISCOUNT model remains a useful took for estimating value. This CHAPTER explores the general model as well as specific versions of it tailored for different assumptions about future growth.

consequences in the long term of a firm whose earnings grow 6% a year forever, while its dividends grow at 8%. Over time, the dividends will exceed earnings. On the other hand, if a firm's earnings grow at a faster rate than dividends in the long term, the payout ratio, in the long term, will converge towards zero, which is also not a steady state.

Loading..

Tags:

  Model, Terms, Chapter, Rates, Long, Dividend, Discount, Chapter 13 dividend discount models, The long term

Information