Dividend discount model (DDM) is a way of valuing a share based on the net present value of the dividends that you expect to receive in the future. According to the DDM, dividends are the cash flows that are returned to the shareholder.

FY200220032004200520062007F2008F2009F
Share price0.1550.1500.2300.3700.4500.450
Dividends per share 0.0050.0120.0140.0120.0130.0190.01780.020 Dividend Growth0.08330.2580.0140.014

Dividend rates are expected to grow for FY2007 to $0.019 excluding the special dividend, and then grow at a constant rate for the next 2 years at a rate of 14%.

Forecasted Dividend Growth Rate =
= 3
=0.14

According to the DDM, where dividends are expected to grow at a constant rate and the holding is perpetual, the value of the share is:
Where g is the dividend growth rate and r > g

Therefore,
P2007 =
P2007 =
P2007 = $0.37

Our assumptions

1.Shareholders' required rate of return, r remains constant at 18.77% from 2006 to 2008. 2.Dividends per share have been forecasted to increase to $0.19 in 2007 (exclusive of special dividend) 3.Dividend growth rate of 14% will be constant only for the next 2 years from year 2008 and 2009.

Analysis
In the DDM valuation model, Shareholders' required rate of return, Re is assumed to be constant at 18.77% from 2006 to 2008 where dividends are assumed to grow at 14%. The required rate return derived from historical price was 18.77% so we expect the beta to be same for the up coming 2 years, therefore we expect same Re for year 2007 and 2008.

Also, dividends per share for FY 2007 have been forecasted to increase to $0.019 assuming payout ratio to be 68%. s a result, net profit attributable to equity holders of the company improved by 130% from $3.9 million to $8.9 million.

Cash and cash equivalents decreased by $5.1 million in HY2007. The reduction in cash and cash equivalents arose...

...The DividendDiscountModel equates the intrinsic value of the stock. If the intrinsic value is greater than the price in the market, then the stock (company) is undervalued and investors should look into purchasing the stock. This is ideal for valuing a stock for a specific period in the future. The equation is shown here:
This model is not usable as it has an infinite sum of variable cash flows. But, we can value the stock by using...

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DividendDiscountModels 1. The intrinsic value, denoted V0, of a share of stock is defined as the present value of all cash payments to the investor...

...Dividend policy is concerned with financial policies regarding paying cash dividend in the present or paying an increased dividend at a later stage. Whether to issue dividends, and what amount, is determined mainly on the basis of the company's unappropriated profit (excess cash) and influenced by the company's long-term earning power. When cash surplus exists and is not needed by the firm, then management is expected to pay out some or...

...Deriving the DividendDiscountModel in the Intermediate Microeconomics Class
Stephen Norman Jonathan Schlaudraff Karianne White Douglas Wills*
May 2012
Abstract This paper shows that the dividenddiscountmodel can be derived using the basic intertemporal consumption model that is introduced in a typical intermediate microeconomic course. This result will be of use to instructors who...

...Equity Valuation
Lecture Map
Definitions of Value
Book value, Liquidation value, Intrinsic value, Market value
Dividenddiscountmodels
Constant-growth
Multi-stage growth
Value Metrics and Determinants of Value
Current earnings and growth
P/E
Lesmond
1
Book Value of Equity
The firm’s equity value, or stock value, is
stated right on the firm’s books
This is NOT the market value of equity
Book value per share of Equity...

...The Dividend per share for 2013 and 2016 are given on Value Line. The dividend growth for the years in between is calculated as follows:
|Dividend ‘13 |.14 |
|Dividend ‘14 |.15 |
|Dividend ‘15 |.17 |
|Dividend ‘16 |.18 |
.18 - .14 = .04; .04/3 = .0133
In order to calculate Value...

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...Deal with rational for dividend according to MM Relevance theory, Walter's Model, Gordon’s Growth Model, Graham Dodd Model
Deal with rational for dividend according to MM Relevance theory, Walter's Model, Gordon’s Growth Model, Graham Dodd Model
Financial Management Assignment 2
Topic: Rational for Dividends
By Group 2:-
104 | Anshul Jain
105 | Bhaskar Jain...