How To Use Dividend Valuation Methods To Value A Stock

In today’s video, we learn about the four dividend valuation methods that can be used to value a publicly traded company. I also talk about using the capital asset pricing model (CAPM) to calculate the discount rate used in the dividend discount model.
- Dividend Discount Model (DDM)
- Constant Perpetual Growth Model
- Two-stage Growth Model
- Non-Constant Growth in First Stage
We go through four different examples and then I provide two homework examples for you to work on. Comment and share your answers below.
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[@countessDra]

I used the constant perpetual growth model for the first question and got $21.2 and used the Two-Stage growth model for the 2nd and got $137.05. Great Video. Thank you!

[@gregaaron]

Great video, very helpful for my masters in finance course. Thank you.

[@morayophilips6200]

You've done a good job! Used this...to answer a question on DVM for stock valuation in my coursework. Thank you.

[@financekid3163]

Thanks for watching!

[@shireenrosario3075]

Very well illustrated and to the point !! Thanks !!

[@yejin5315]

Thank you so much for the video. It really helps. Its so diffifult to read the text book.

[@AbdulQadir-gf5nv]

Thank you so much for excellent explanation 👍🏼

[@bajajholdings843]

Great Channel "FinanceKid" your videos are very helpful in educating people who are new to finance, thank you

[@FoodLiquorCool]

Thanks so much!

[@nataliesabatella6007]

beyond helpful! Thank you!

[@vamshi8597]

thank you so much

[@gloriaa610]

Thank you, it was very helpful

[@VarietyG4MER]

I’ve been taught this over and over again and was never able to understand it. You finally helped me get this concept and i feel so grateful. Thank u so much!!!

[@hardikbhandari4115]

Superb Sir

[@Oldman1912]

Thank you so much for this.

[@fabeanlatouche7089]

Very helpful...thanks alot

[@trademyway9135]

Well explained ..cheers man...

[@ntwarishami]

Thank you

[@1barut]

1) Formula: Constant Perpetual Growth | Answer: 21.2
2) Formula: Two Stage Dividend Growth Model | Answer: 137.06

[@lachlangmbh8947]

Wrong. its 19.7 and 114.65

[@craig1131]

@@lachlangmbh8947 no it’s not, the first one is 2(1+0.06)/(0.16-0.06) which equals 2(1.06)/(0.1)= 21.2
Cba to check 2nd but I’ll assume he’s got it right aswell

[@lilmoesk899]

Thanks man!

[@akunacc5186]

I'm confused to calculate the firm value. the formula is the derivative of PV (present value) or by the formula V = E + D or V = NOPAT/r?
what's the difference between the formula?

[@vicluz7794]

thank you

[@aartidev8697]

What do we do if dividends for year 3,4,5 are provided but not the first two???

[@valueray]

what if g > k? which formula to use then to calc margin of safety?

[@zazikswan8204]

What if you get an exam question with different K variables? How would you go about solving that? You know the Dividend1 just paid at 0.51, and you have a constant growth rate at 5% but 3 different K at 14% first 3 years, 12% next 3 years and 10% indefinitely after, what is the fair price of the share? Do you have a video converting something like this :D

[@thezone8348]

What is the difference between discount rate,market rate and coupon rate?

[@chareenie1]

Bonus Question Answer for 1. 21.2 used Constant Perpetual Growth
Question 2 Non Constant Growth Model Answer 137.15

[@memorykatsoka3461]

So helpful

[@alexturner2410]

so required return is the same as discount rate?

[@shivraj8036]

In bonus question no. 2
For the first 3 years the dividend growth is more than the discount rate
How can this be possible?

[@rohanagnelo7074]

What about the taking into account the final cash flow when selling the stock ?

[@grantstanish551]

DDMs assume the investor holds and get the cash flows into perpetuity.
If you wanted to estimate cash flow with a sale, you would have to find the date of the sale, the PV of the dividends up to that point, the sale price (basically impossible to assume) and the PV of the cash flow

[@mritorto1]

who provides you with the discount rate

[@knowledgesharing4574]

If a Company pays stock dividends, how to calculate the value of a stock?

[@postmanpat2964]

cheers boyo

[@bloodykratos]

which formula would you use to solve question 2

[@officialhybrid8095]

The long one [Two growth dividend model]

[@howardmasekesa1172]

i have 21.2 for the first one and 137.06 or the second one

[@brodyb7602]

What if it's something like this: You expect the company to begin paying a $2.6 per share dividend in 15 years, and you expect dividends to grow perpetually at 3.6 percent per year thereafter. If the discount rate is 13 percent, how much is the stock currently worth?

[@celestinechike3048]

Are you taking a course on coursera?

[@michaelbelmasov8571]

How do we know the discount rate?

[@user-fm5rr2xe4t]

👏🏻👏🏻👏🏻

[@victorquintero21]

$20 for 1 and 75.76 for 2. (I am unsure about 2. Can someone check and let me know?)

[@rishirishavverma6167]

I am getting 21.2 and 137.02

[@Tshem17]

I also got 21.2 for number 1 but 35.79 for number 2

[@georgephilip1966]

@@rishirishavverma6167 In the final question, Why ( $52.5)/1.1^3 and not ^4 ?

[@UkraineYamaha]

I have 21,2 for first and ~ 148 for 2.

[@thezone8348]

I got 137.06

[@ahmedjamaissa9095]

As for the second question growth is more than discount rate the it will give a negative value hence the question in its entirity is wrong..

[@soughtafter6455]

he said in the video that it doesn't matter if g1 is greater than the discount rate. what matters is that g2 has to be less than the discount rate. so the question is okay!😊

[@chiajoyce6071]

Question 1 =$21.20 and Question 2 =$93.65

[@AbdulQadir-gf5nv]

BQ # 1 [$21.2] and BQ # 2 [$137.05]

[@adriab5796]

1) Formula: Constant Perpetual Growth | Answer: 21.2
2) Formula: Two Stage Dividend Growth Model | Answer: 162.22

[@adriab5796]

re-did the second one, 2) Formula: Two Stage Dividend Growth Model | Answer: 137.06