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Grab a cup of coffee☕️
Today, we’ll learn one of the simplest valuation models for a publicly traded stock which can also blend in with your financial goals.
I’m talking about the Dividend Discount Model (DDM)
A detailed thread 🧵with HCL Tech as example & bonus giveaway
(1/n)
Today, we’ll learn one of the simplest valuation models for a publicly traded stock which can also blend in with your financial goals.
I’m talking about the Dividend Discount Model (DDM)
A detailed thread 🧵with HCL Tech as example & bonus giveaway
(1/n)
The Dividend Discount Model (DDM) calculates the fair value of a stock based upon the sum of all future dividends discounted to their present value
Stock Price = D/(r-g)
D = est. next year dividend
r = cost of equity capital
g = growth rate of dividends, in perpetuity
(2/n)
Stock Price = D/(r-g)
D = est. next year dividend
r = cost of equity capital
g = growth rate of dividends, in perpetuity
(2/n)
How to simplify the DDM Formula?
“D” – You can use latest FY dividend vs est. of next yr
“r” – You can use 10yr G-sec yield as cost of equity capital or refer to next tweet
• AAA Rated Cos - G-Sec
• AA - G-Sec +1-2%
• A & below - G-Sec + 3-5%
(3/n)
“D” – You can use latest FY dividend vs est. of next yr
“r” – You can use 10yr G-sec yield as cost of equity capital or refer to next tweet
• AAA Rated Cos - G-Sec
• AA - G-Sec +1-2%
• A & below - G-Sec + 3-5%
(3/n)
