Dec 10 12 tweets 5 min read
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
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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

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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%

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How to link Financial Goals with Dividend Discount Model?

Use of G-Sec yield for “r” = a variable based on interest rate cycle.

Example: If you want 15% CAGR returns, use 15% as “r”

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“g” – Est. growth rate of future dividends

Most important assumption

A company can have very high dividend CAGR over long term, but much lower in recent past

Ex: #EicherMotors has grown dividends at 26% CAGR since 2005 (Re 0.4 to Rs. 21), but only 13% CAGR in past 6 yrs

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Is it realistic to assume growth rate of dividends into perpetuity?

No, and no company can maintain same growth rate forever!

Markets are forward looking, but most analysts value a stock based on next 1-3 yrs growth, our job is to roughly guesstimate next 3-5 yrs growth

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How to estimate “g”?

1. Use management guidance on PAT growth & subtract 3-4% for dividend growth rate

2. If no guidance available, study recent 3-5 yrs PAT/dividend growth & subtract 2-3% from it

3. Always err on the side of caution & try to estimate for next 3-5 yrs

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Bonus Giveaway

I use this template for any high dividend yielding (>2-3%) companies which have a good track record of growing dividend > GDP growth rate

With the 3 DDM inputs, it will reveal the fair value of any stock and the current discount/premium to the fair value

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All my followers who Like & RT the 🧵 can get this Dividend Discount Model (DDM) spreadsheet for your personal use to calculate the fair value of any business

It's pre-populated with my DDM valuation for 5 stocks.

Just drop me a DM & I will share the link by 9pm tomorrow
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Caveats - Do not apply DDM for 👇

1. Cos which have never paid dividend
2. Cos with highly fluctuating dividend payout %
3. Cos with high rate of dividend growth (>20-30%)

Recommended use only for mature businesses with history of regular, predictable dividends

(10/n)
Dividend Discount Model (DDM) - Example #HCLTech

Stock Price = D/(r-g)

D = Rs 42/share (FY22)
r = 12% (Target XIRR)
g = 8%

5 yr PAT growth is 9% so I assume 8% rate of growth for foreseeable future

Fair Value = Rs 1050

Note - DDM is an approximation based on assumptions

END
Thanks a lot everyone for the extremely warm response to this thread 🙏

As promised, I've shared (via DM) my personal DDM Google sheets pre-populated with DDM for 5+ stocks - #ITC, #HCLTech, #HDFCAMC, #Polyplex, #SwarajEngines

Please DM me if I missed sharing it with anyone.

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# More from @gurjota

Nov 14
Mega thread on Technical Stage Analysis and my learnings based on Stan Weinstein's book.

Today we'll cover

1. Stage Analysis
2. Technical Rules for Buy and Sell
3. Safest Point of Entry and Exit
4. Study 10 🇮🇳 Stock Charts (Large/Mid/Smallcap)

1/n
1. Stage Analysis

As per Stan Weinstein, each stock can be classified into 1 of 4 different stages.

Stage 1 - Basing Area
Stock trades in a range around 30W SMA over a long period of time with low volume. Both buyers & sellers move in equilibrium.

2/n
1. Stage Analysis

This phase is characterized by a sharp spike in volumes, breaking out of key resistance and sharply rising stock price over a period of time (many months or years) without breaking the key moving average.

Example: #FineOrganics

3/n
Sep 10
This annual report is a goldmine & hands down one of the best I’ve ever read

A small cap pharma company with very high growth ambitions over the next 3-5 yrs

PS: Great Annual Report ≠ Great Business or Investment 💡

1/n
The company is Glenmark Life Sciences.

Today we’ll cover it's

1Background
2Promoter
3Management
4IPO
6Customers & Markets
7Mfg Plants
8Capex Plan
9R&D
10Compliance & Audits
11Financials & Metrics
12Bull, Base & Bear Case
13Key Risk Factors

2/n
1. Background

Glenmark Life Sciences (GLS) is the erstwhile API business of Glenmark Pharma, & it was spun off as a separate entity in 2019.

Glenmark Pharma’s API business began in 2001 (refer images) which is why the Annual Report has the tagline “20 years in the making”

3/n
Jun 13
I analyzed 25+ years of #Nifty data to better understand bear markets 🐻

Why?

Given the recent market sell-off and bearish stance of market participants, history and data is your best guide to prepare if we're headed for a bear market.

1/n
But first, do you know the definition of a bear market?

When any index falls 20% or more from it's all time high, it is termed to be in a #bearmarket 🐻

How do you calculate length of a bear market? The time duration in days from previous all-time high to market bottom.

2/n
🇮🇳 Nifty last 25 years (1997-2022*)

Number of Bear Markets = 8

Average drawdown % = -38.5%

Average bear market duration = 246 days (8 m)

Key takeaway - Bear markets occur every ~3 years and take on average 8 months to bottom

3/n
Jun 11
Zerodha has released a cool new feature to link your family member accounts and see them all in one place.

This is very useful if you have one person operating all family accounts.

Short thread on how to do this 🧵👇

#Zerodha @zerodhaonline

PS: Retweet to share with others
Family account linking can be done directly from the Kite mobile app itself.

Just go to your Client ID tab and there is a link for "Family" under Console.

Once you click that, you get an option to link an account. Then, you need to enter a few details of your family account.

Repeat the above steps for as many accounts you need to link.
May 18
Failure is life’s best teacher & loss is stock market’s best teacher!

I lost 80% of my capital in a #Nifty50 stock in just 1 year!

It is my life's worst investment till date & Covid had no role in it!

Here are my Top 5 lessons from my biggest mistake!

(1/9)
Lesson 1 – Never average down with deteriorating fundamentals

I bought #YesBank in Sep'18. It was in Nifty since 2015 & reported 4k cr PAT in FY18.

1 week later, RBI declined CEO Rana Kapoor’s extension & stock crashed 50%🔻

I kept averaging looking at past performance
(2/9)
In Jan'19, new CEO announcement led to good recovery in stock price.

I thought market is happy and bank is back on track.

But in April, bank declared shocking Q4FY19 numbers.

A loss of 1500 cr which was the 1st ever in the bank’s history!

Stock crashed 50% again 📉

(3/9)
Apr 21
Do you know there is a crucial difference between

Interim Dividend
vs
Final Dividend

And this difference is just "1 word" but it affects you financially 💵

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First, let's understand the definition of both these types of dividends

"Interim" Dividend is the dividend declared by the Board of Directors (BOD)

"Final" Dividend is the dividend recommended by the BOD and if approved by shareholders, declared at the company AGM
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In both cases, the dividend needs to be paid within 30 days from the date of declaration.

So now let's come to the part on how this affects you financially 💰

Interim Dividend Example 👇

I have invested in HCL Technologies and the co declared their Q4FY22 results today
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