How to Value a Dividend Stock! (Dividend Discount Model Example)
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- Опубликовано: 31 июл 2024
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In this video, I go over step by step how to value a dividend stock using the dividend discount model. This is a method that has been used by many famous investors over the years, and has allowed investors to properly determine how to value dividend paying stocks.
I am not a Financial advisor or licensed professional. Nothing I say or produce on RUclips, or anywhere else, should be considered as advice. All content is for educational purposes only. I am not responsible for any financial losses or gains. Invest and trade at your own risk.
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Well, I said it once and I'll say it again, you are really good at explaining these formulas using real examples.
Funny how you are the only guy on youtube that goes straight to the point in a simple and understandable way.
Thank you!! I always try and provide value!
I watched this during my work break! This was amazing! Definitely hitting the sub button! Thanks for break in down the dividend discount model 💯
Glad you enjoyed!
What you did was so valuable.. Thanks Bro. I am subscribing
Thank you so much! you solved the problem I have been stucked for a long time
Good video dude important stuff!
Great tutorial, thank you sir
Love it!
Hi, can't we just use the CAPM instead of the WACC to calculate the yield expected by the market ?
Thank to explain in easy way
You are welcome!
Simply the Best!!
thanks!
What does it mean when the result of difference is negative nmbr ?
Man, sharing your knowledge feels like receiving dividends to my financial brain investment! hahaha. You make seemingly complicated stuffs so simple. You're an awesome teacher☺. I wish you can add some takeaways every end of your videos for scenarios where the method might not apply (such as if a negative output for this one). Also, if you can make for ETF valuation, but i think its always close to NAV? sorry, dummy brain here😅 Nevertheless, your tutorials are so helpful. Thank you so much. Keep making more (sounds demanding)hehehe.
Thank you!! I’ll try and continue to provide insight!
I have the same question regarding the negative output for this one!
Thanks!
Hey
You should not use the WACC to discount the dividends of a company, you should use the Cost of Equity! Great video btw :)
Can you possibly do a video covering how to calculate WACC? Using both the market value of equity and market value of debt?
That’s a great idea! I’ll add that to my list of videos to make.
Hi, I want to know why use WACC but not cost of equity in this video?
I really like your channel and cannot wait seeing new guides, but Is there a way automate it when changing the ticker?
I'm looking into this!
Is it valid to use WACC as WACC used both cost of equity and debt?
It didn't work for me. I did it for SCHD and came up with a 2022 dividend total of 2.56 with an average growth rate of 15.53 and 6 for the WACC/Discount Rate gives me a negative intrinsic rate of -31.07. I'm sure that is happening because the average growth rate is less than greater than the discount rate. Does this not work on ETF"s?
Can you explain how can the Div. discount model reliably tell us the intrinsic value of a stock? If a company doesn't pay dividends, than according to this formula the stock will have no value???? we are not counting in anything else of the company's earnings.
Hi, for the dividend discount model, aren't we supposed to use the cost of equity insted of the WACC to find the intrinsic value?
How do you work out the cost of equity?
@@AA-fb6ni CAPM
Of course you need cost of equity to value equity xd
Great video, but I agree, you should use CAPM to asses an adequate discount rate for equity only.
What if WACC minus Average dividend growth is negative? Will the formula still work or does it need an adjustment?
Have you found a solution to this yet? tried it with TGT and it didn't work
Why would you use WACC in dividend discount model, why not cost of equity?
And what happens if the wacc is lower that the Average Growth rate?
I'm getting an intrinsic value that's like a giant negative number. I'm working on AVGO.
if Dividend growth rate is higher than WACC/discount rate, that happens. There are other forms of the dividend discount model to account for this.
What formula should I use when the average Growth Rate is higher than WACC? idk what to do
I wish I knew how to help you, but what stock are you looking at that their growth rate is higher than their WACC
I think a dividend discount model will be inappropriate for whatever you’re doing. I would recommend a DCF especially for tech stocks with high evaluations. Companies like Coke are far more mature (cough cough dividends) and investors attracted to the stock due to its steady growth rate and low volatility.
Cool stuff man. Do you recommend any books to dive deeper into this topic?
Maybe not specifically on the topic of valuing dividend stocks, but I would recommend “The Intelligent Investor” by Benjamin Graham for any investor.
Too good.
Thank you!
Love your videos BTW! A comment/request and a question. When using DD Model do you or should you include a safety margin (say a 15 to 30%) reduction of calculated intrinsic value price? Most models include this but I've never seen this valuation model before so not sure what the norm is here. Next, I've seen your work and you are so capable of building a dynamic model that imports all the data via web scraping. To have a feature like this incorporated into a watch list where we see updated 'fair value" compared to current market price would be HUGE. That is a model I would pay for verses plugging away at Google Sheets and cussing like a sailor when I screw up the formula data. Great job. Subscribed and Liked!
Hi David! I'm glad you like the videos! Applying a margin of safety to any valuation model is always a wise decision in my opinion regardless of which valuation model is used, although not all investors use a margin of safety.
And that is a phenomenal idea for a spreadsheet. I really like this idea. I'm likely going to start looking into ways to make this possible. Give me some time and I'll see what I can do!
What do you do If the Average Growth Rate is bigger than WACC?
This form of the model does not work prosperity if that is the case. There are other forms of the DDM that account for this, I’ll likely make a video on this in the future.
Hi! can i still use DDM even if the growth rate is sometimes negative?
When companies have a negative growth rate the DDM will not be a good valuation model. You will have skewed results.
Is it possible a negative number?
Im confused by the formula to get intrinsic value. The calculation you are using with those exact number is not coming out for me to what you are getting.
What do you do if the dividend payout is different at different points in the year
Just plug in the yearly totoals
Where do I find WACC with out having to do the math?
What should I do if the average growth rate is higher than the WACC?
like for MSFT - WACC = 8.19% and avg growth rate = 10%
giving a negative value for the stock price
there are other forms of the DDM thta can account for this. I'll make a video on this soon.
what does it mean when the result of intrinsic value is negative number?
That can happen when the average growth rate is higher than the weighted average cost of capital, which is one of the fallbacks of the dividend discount model. That is why the dividend discount model is typically used for blue chip dividend stocks.
@@Dividendology noted on this, thank you
what does it mean the 10% difference? How can you know if a stock is over or undervalued, once you know the % difference. is 10% allot or is it little, thus this stock is not overvalued?
It can really depend on the industry, and it also depends on your level of risk aversion as an investor. Many investors feel comfortable investing in a company if it’s undervalued by 10%, but some investors may only want to invest in companies that are undervalued by about 30 or even 40 percent.
If the intrinsic value is greater than the stock price, then the stock is considered undervalued.
@@Dividendology then for a company overvalued, the intrinsic value has to be lower than the stock price I imagine. Thank you for the help!
¿what happend if in 2020 and 2021 the company didnt pay dividends because the had loses?
Definitely take that into consideration. I would probably lower my growth rate projections because of this.
Thanks bud! Would it be possible if the average growth rate is actually higher than WACC? If that's the case what do we have to do?
It doesn’t happen often, but that is possible. There are other versions of the DDM that can be used in that scenario. I’ll likely make a video on that in the future!
@Dividendology I did one on Apple and found that out
@@dinozhang6368 Did you ever manage to find a solution to this? Thanks.
@@Dividendology Could you direct me to this video please? Thanks
I just tried to use this model on McDonalds, and the dividend growth rate is higher than the WACC. How do we fix this problem?
its only working if average growth rate =< WACC, otherwise you get a negative value...
If the Dividend Growth is higher than the WACC i get a negative figure
Hi! May I know if this is a zero growth DDM?
It assumes a constant growth rate!
@@Dividendology thank you so much ❤️❤️❤️
The working is not complete , where is the forecasting of the dividends and then discounting them to find the PV
The equation used is an abreviation of an infinite series if dividends that grow at a constant rate and are discounted at a constant rate.
Do you need a safety margin for this model? I noticed that you did not use one.
I would suggest using a margin of safety with any valuation model.
“For beginners: If the ticker symbol isn’t “O” don’t invest”
-Some other guy
can i do 10 years worth of dividend data?
Use whatever helps you decide on a growth rate!
Stop tutoring excel functionality in the midst of an all important topic on Dividend Discunt Model
I couldn't believe how you just glossed over the WACC and how to obtain those numbers. Makes the rest of the content unusable.
I have a video on how to calculate it.
What if Average Growth Rate is higher than WACC?? Other people are also asking this question, but there hasn't been no answer
I’ll likely make a video on that sometime.