Dividend Discount Model Explained in 5 Minutes
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- Опубликовано: 20 июл 2024
- Ryan O'Connell, CFA, FRM explains the dividend discount model in 5 minutes.
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Chapters:
0:00 - Dividend Discount Model Definition
1:01 - Dividend Discount Model Formula
2:48 - Example Calculation
3:42 - Gordon Growth Model/Constant Growth DDM
Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.
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► Get 20% off CFA Level 1, 2, and 3 complete courses with promo code "RYAN20". Explore here: analystprep.com/shop/all-3-levels-of-the-cfa-exam-complete-course-by-analystprep/?ref=mgmymmr
Cheers mate. Explaining it better then my lecturers.
Haha I appreciate it!
Thank you sir for such wonderful video and explanation.
Great explanation. You are a life saver.
crisp and concise. Thanks
Glad it was helpful!
TY! this was wayyy clearer than how my professor tried to explain it
Haha I appreciate the feedback!
Buffett views retained earnings as the same or better than a dividend (no taxes for reinvested earnings), and has an equity bond theory that that accumulated value of “owner earnings” belongs to the investor…. by discounting the sum of all future owner earnings back to today in a similar manner, you can value a stock that doesn’t pay a dividend. Some people make the mistake of thinking equity bond is the initial 1/PE or E/P yield, but that isn’t how Buffett looks at it. I don’t know how bonds work or how Buffett values a bond, and I think Buffett is starting with that initial framework to build his equity bond theory but he has mentioned coupon rates and Mary Buffett has a few different books where she explains it a bit.
Super clear explanation thank u!
Glad it was helpful!
Thanks so much for the explanation
You're welcome!
Thank you Teacher
You are welcome Neal
Thank you 🙏
My pleasure!
when using the Gordon Growth Model, what if g > r?
Good question! In the Gordon Growth Model, if the growth rate (g) is greater than the required return (r), the model will not hold, as it will predict a negative stock price, which is not realistic. This scenario typically suggests an overvaluation, unrealistic growth expectations, or too low of a required return.
Isn't Dsub1 the current dividend multiplied by (1+div growth rate)? D1 should be the NEXT div to pay. In short, it should have been $8 * 1.01 = $8.08. The final formula would have been the $8.08/ (.08-.01). The intrinsic value using that formula would have been $115.43.
Great Video, thanks man
Glad you liked it! My pleasure
How did you get 103.47? 7.41+8.57+4.76+82.32 = 103.06
Good catch, that is just a summing error on my part. The rest of the logic in the video is right but I should have written 103.06
can you explain why in gordon model we minus growth rate from the rate of return ???
Because R is risk associated with a stock and g is growth rate associated with the stock. So you minus the risk from the growth rate which is positive to a stock to obtain less risk since potential growth reduces overrall risk in a firm. Hope it helps. Thats the best way i can explain
Best explanation ❤
Why do we add the $100 at year 4? Is it because we expect to sell the stock again after those 4 years?
Correct! The $100 is the cashflow that we expect to receive from selling the stock 4 years from now. We expect the stock price to be $100 and we will sell the stock at that time
You should do a problem where there is a period of high growth/low growth and constant growth thereafter. Kind of ties the Gordon model with a typical problem
Good idea, I can look into this topic in the future
Please make video on multistage growth model
I have one question. Why is D1 = $8? Why is it not D1= 8(1+0.01)? Great video❤️
Thank you
My pleasure!
great , but how do you use this information , this model basically tells you if the company is profiting or not . Is that its sole purpose?
It tells you if the company is correctly valued. If the Intrinsic value is higher than its current stock price, then the stock is undervalued and is selling for less than its actually worth so you should buy more of it.
😊
Please make video on how to start preparation for CFA LEVEL 1 for 2024 and also on "Will A.I overtake the CFA's jobs in future?"
Those are 2 very good and broadly appealing video topics that I will look into
@@RyanOConnellCFA Thank you
@@Gaurav_Shrivastav Thank you for the suggestions!
thnks
My pleasure!
What if D2,D3, etc. is not given?
It depends on the way the question was phrased in that case. They may say, "the dividend will grow by 3% each of the next 2 years" which would mean you need to calculate D2 and D3 yourself
yooo ty
My pleasure!
thanks i love you
You're welcome!
But expected dividend payouts in forever in 100 years or more and payout every 3 months (not each year，） 😂
Say again.
Liked this a lot was easy to follow. Was trying this out on Hershey stock to see if its a buy using Gordon Growth since dividends have increased the past 15 years but end up with negative number? Dividend CAGR 20 y is .0952 & amount is 4.46. 4.46/(.08 - .0952) = -293.42 ?😂 Either Im doing it wrong or Hersheys is going under asap hahah