Dividend Discount Model Guideline Example

Assume Security A has generated annual dividend growth of 10.0% over the past 3 years. The most recent annual dividend is $2.00.

Assume Security A will continue to increase dividends at 10.0% for the next 5 years before reducing its dividend growth to 5% for the long term.

Also assume that the required return for A's stock is 15%. It is currently trading for $35.59

Calculate intrinsic value

Dividend Discount Model Guideline Example Assume Security A has generated annual dividend growth of 10.0% over the past 3 years. The most recent annual dividend is $2.00. Assume Security A will continue to increase dividends at 10.0% for the next 5 years before reducing its dividend growth to 5% for the long term. Also assume that the required return for A's stock is 15%. It is currently trading for $35.59 Current Stock Price of A 35.59 Growth rate for years 1-5 Growth rate for years 6+ Required return 0.1 g1 0.05 g2 0.15 k Year CF OD 1 D 2D PVCF 2.00 2.20 1.913043 2.42 1.829868 2.66 1.750308 2.93 1.674208 3.22 1.601416 33.82 16.81487 3D 4D 5 D 5 V PV Current Stock Price of A Difference 25.58371 35.59 -10.0063 v Intrinsic Value 25.58371361 Price 35.59 v