Dividend Discount Model
is a procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value.
Using the constant growth dividend discount model
, Evelyn computes an intrinsic value of $28.97 [($1.95 x (1 + 0.04)) / (0.11 - 0.04)].
Some evidence on the value of dividend discount models
. Financial Analysts Journal 41, no.
The dividend discount model
's strict adherence to dividends as cash flows does expose it to a serious problem.
Substituting back into the dividend discount model
, we get
Finally, dividing both sides of the dividend discount model
by revenues per share, the price/sales ratio for a stable growth firm can be estimated as a function of its profit margin, payout ratio, risk and expected growth.
We consider William Hill shares to be attractively valued and this view is supported by our Dividend Discount Model
, where the group ranks in the top quintile.
First, the focus has shifted from valuing stocks through models such as the dividend discount model
to valuing businesses, representing the increased use of valuation models in acquisitions and corporate restructuring (where the financing mix is set by the acquirer) and the possibility that financial leverage can change quickly over time.
William Hill remains highly dependent on the performance of its retail business, but the group is looking to increase earnings growth from its interactive betting and through international expansion we consider William Hill shares to be attractively valued and this view is supported by our Dividend Discount Model
where the group ranks in the top quintile.
Williamson (1985), 'Some evidence on the value of the dividend discount model
The shares are attractively valued, ranking in the second quintile on our Dividend Discount Model
and offer good upside potential.
This view is supported by our Dividend Discount Model
where Tate & Lyle ranks in the upper quintiles.