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Dividend Discount Model (DDM) - Constant Growth Dividend Discount Model - How to Value Stocks

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http://www.subjectmoney.com http://www.subjectmoney.com/definitiondisplay.php?word=Dividend%20Discount%20Model In this lesson we are teaching you how to price stocks using the Dividend Discount Model (DDM). We explain the concept of the dividend discount model (DDM) and show you the necessary assumptions along with how to get the cost of equity (discount rate) using the Capital Asset Pricing Model CAPM. We also teach you the constant growth dividend discount model and then show you how to tailor the dividend discount model according to the what is expected of the company in the future. Please don't forget to subscribe, rate and share our videos. Please also visit our website at http://www.subjectmoney.com and http://www.excelfornoobs.com https://www.youtube.com/user/Subjectmoney https://www.youtube.com/watch?v=n76Pz3HOBPo http://www.roofstampa.com hjttp://roofstampa.com http:/www.subjectmoney.com http://www.excelfornoobs.com
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Text Comments (22)
Mohammed Al Thunaibat (5 months ago)
Excuseme how you calculated 24.98? I calculated it and it gave me 36.63!
Anushka Jain (10 months ago)
nicely explained.
Meshia Smith (1 year ago)
Very helpful video. Thanks!
Leny Freeman (1 year ago)
Excellent explanation but I find I must work with these formulas over and over in order to really understand it.
Emilio J. Mucavele (1 year ago)
How do you determine the present value to pay for the company's share, if there are multiple growth rates? For example; a company has just paid a dividend of $80 per share and forecasts that its earnings and dividends are expected to grow at an annual rate of 5% over the next four years. Thereafter, earnings and dividends are expected to grow at an annual rate of 6% for the foreseeable future. If we require a rate of return of 20%, how much would we pay for each share in this company?
Logan Martinez (1 year ago)
Really helpful!
NaturallyRae Travels (2 years ago)
Could you help me with a question?
Miyuki Lin (3 years ago)
What happpened if the company want to reduce its dividend ?
FinanceKid (1 year ago)
It depends if it is temporary or a more permanent decision. If it's temporary, you need to assume how long the company wants to preserve capital before raising its distribution again. If permanent, probably due to cyclical changes in industry or legislation, you shouldn't be using the model because the DDM is tailored for more stable companies with consistent track records.
V M (3 years ago)
How would the formula change if yr 1-2 dividend growth by i.e. 6% and 5% thereafter ? Thanks
Rabson Lungu (4 years ago)
DDM well articulated. I endorse your work.
Mohamed IZZ El-Deen (4 years ago)
why we plus 1 on the growth rate (1+growth rate )???
Samaha Abid (2 months ago)
Its mean after one year we distribute the dividend
shanedallas (4 years ago)
This is because your growth is with respect to 100% of your existing investment value. Say for example you have $100 in a savings account, and the bank is paying 2% annually. You can calculate the future value of time period 1 by: $100 today = 100 X (1+0.02) = $102 the next year. Make sense?
Subjectmoney (5 years ago)
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Subjectmoney (5 years ago)
Yeah I'm pretty sure I explained that in this presentation. The actually dividend discount model discounts all future dividends.
Ron de Guzman (5 years ago)
Very nice presentation. One comment though: in the book of Brearly & Myres, we don't need to plug in the terminal value of stocks (future price of stock) in the model since in theory, this will become zero while dividend will account for all cash flow to the investor. Thus you can use just the model for discounting of bonds in perpetuity to the value of the stocks. This simply is the dividend discount model.
Subjectmoney (5 years ago)
Because I am solving for the expected intrinsic value 3 years in the future I must discount it back 3 years.
Chico Rowland (5 years ago)
OK, I'm confused again. Isn't the intrinsic value of the stock: D1/k-g? Why did you divide that by (1+k)^3?
Chico Rowland (5 years ago)
I just watched it again. I get it. It's the price of the stock.
Chico Rowland (5 years ago)
You had me until the last screen where you had …+3(1.05)/.136-.05/(1.136)^3. What is that?
Subjectmoney (5 years ago)
Hey guys please comment on this video. Any interactions such as commenting, rating, sharing and adding to your favorites increases our ranking on Youtube

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