Valuing Stocks Using Dividends: The Dividend Discount Model




Time Value of Money
Knowledge Center

Translate

Forum
2
Mardhiah Baharin
Manager, Malaysia

Valuing Stocks Using Dividends: The Dividend Discount Model

🔥NEW The value of a stock in its simplest sense is the present value of the cash flow expected to be provided by that stock (plus any increase of the share price).
The dividend discount model, a formula used widely in stock valuation, uses the future value of dividends to determine the current value of a stock. The formula to produces such valuation says that Price (P) is equal to the Dividend (D) divided by the discount rate (k) less the growth rate (g) of that divided.
The formula of the dividend discount equation can be written as P = D / (k-g)
It's clear that when the dividend (D) is high, the Price (P) value will also be high.
What does this mean for high tech based companies, they would then not obtain a high P value...
Someone told me that due to the fact such companies invest a lot back in innovation, so they can't issue high share value. Any responses?

   

More on Time Value of Money:
Summary
Discussion Topics
Time Needed to Double your Money
👀Valuing Stocks Using Dividends: The Dividend Discount Model
Special Interest Group

Do you know a lot about Time Value of Money? Become our SIG Leader

Time Value of Money
Knowledge Center



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2023 12manage - The Executive Fast Track. V16.1 - Last updated: 2-4-2023. All names of their owners.