tag:blogger.com,1999:blog-36722043.post4598549248370972429..comments2023-06-08T06:59:14.045-04:00Comments on HORAN Capital Advisors Blog: Determining the Valuation of Dividend Paying StocksDavid Templeton, CFAhttp://www.blogger.com/profile/08782216535717865701noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-36722043.post-7306145338690530042008-04-22T16:34:00.000-04:002008-04-22T16:34:00.000-04:00I am a student trying to understand Corporate Fina...I am a student trying to understand Corporate Finance! I have done an evaluation of book value and the Gordon model of a stock and find a huge difference. Why would the book value be a lot (3X)higher valuation than the Gordon model? what am I missing?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-36722043.post-84207381082481834602007-11-08T17:35:00.000-05:002007-11-08T17:35:00.000-05:00goth,For the DDM to hold, the formula requires tha...goth,<BR/><BR/>For the DDM to hold, the formula requires that g < r . Another valuation method needs to be employed to ascertain whether a stock is over/under valued when g is not less than r. One can use a free cash flow analysis or Ben Graham's favorite of finding companies that trade below their "net current asset value." There are other valuation model as well.<BR/><BR/>DavidDavid Templeton, CFAhttps://www.blogger.com/profile/08782216535717865701noreply@blogger.comtag:blogger.com,1999:blog-36722043.post-59426550255783101312007-11-08T12:42:00.000-05:002007-11-08T12:42:00.000-05:00Dear David,My question is about the dividend growt...Dear David,<BR/><BR/>My question is about the dividend growth model, for constant growth. What formula do you use when your growth rate,g, equals your discount rate,r ?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-36722043.post-7574268165526435282006-12-08T15:31:00.000-05:002006-12-08T15:31:00.000-05:00Poor Boy,
You have encountered the limitation in ...Poor Boy,<br /><br />You have encountered the limitation in the "constant" growth DDM. There is a "two-stage" DDM to account for companies that have an initial high growth period for the dividend. Following is a link to an article describing how to apply this model to high growing dividend growth stocks.<br /><br />http://www.fool.com/research/2000/features000406.htm<br /><br />Essentially, one calculates the dividend for each year of the high growth period and discounts these results back to the present using a present value calculation. Then a value is calculated for the dividend in the subsequent stable growth phase using the "constant" DDM. The result of the two calulations is added together to determine the stock value.<br /><br />I hope this helps.David Templeton, CFAhttps://www.blogger.com/profile/08782216535717865701noreply@blogger.comtag:blogger.com,1999:blog-36722043.post-38610745764091584572006-12-08T12:49:00.000-05:002006-12-08T12:49:00.000-05:00I've been trying to learn more about the DDM latel...I've been trying to learn more about the DDM lately, and built myself an excel spreadsheet to calculate fair value for me. However, when a company's dividend growth is too high (say, 14%), or their dividend is too high (20%), I get a negative value (stock is worth -$384.00, perhaps). I wondered if this was a flaw in my understanding of the formula, or a limitation of DDM?Anonymousnoreply@blogger.com