Dividend Valuation Model
This model
takes dividend as consistent cash flow generated by the business over the
period of time.
Formula of
dividend valuation model is as under
= D0
(1+g)/Ke-g
Example of dividend Valuation Model
|
Dividend next year
|
40 cent
|
|
Growth Rate
|
8%
|
|
Cost of equity
|
15%
|
|
|
|
Calculate
the Share price?
Solution
|
Dividend
|
40 cent
|
|
Share price = .4/(.15-.08)
|
5.7 $
|
It is
important to remember that dividend is to be paid next year therefore this
dividend has already incorporated that dividend growth.
