Dividend Discount Model (DDM)

Рет қаралды 275,721

10 жыл бұрын

This video illustrates how to value a firm's share price using a dividend discount model. The Gordon growth model equation is presented and then applied to sample problem to demonstrate how the Dividend Discount Model yields an estimate share price for a firm.
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Пікірлер: 92

@terrierlover 9 жыл бұрын

finally!!! somebody who speaks like a normal person and not a robot explaining ddm! thanks!

@claudiadentu2361 4 жыл бұрын

GREAT! Can you do a video on NPVGO? I am doing corporate finance this semester your videos are helping alot but it seems none of your videos covers some of the main topics we are treating in class . Topics such as unlevered and levered Cash Flows, exchange rates, etc. Thank you for the great videos once again! My managerial accounting class last year was a success with the help of your videos.

@danielmathivathan7391 3 жыл бұрын

been watching all your lesson, brilliant way of explaining and making sense of topics which would otherwise be impossible to understand - thank you!

@Edspira 3 жыл бұрын

You're very welcome!

@far3582 5 жыл бұрын

Thank you for explaining in plain language!

@bhagatsingh5019 8 жыл бұрын

Thank you for your all beautifully explained videos.

@Edspira 7 жыл бұрын

Happy to help!

@raff4459 7 жыл бұрын

Great video, Its exactly what I needed

@giselgonzalez8920 Жыл бұрын

I get so happy when I Google these topics and I see you have videos on them. I really enjoy your explanations thank you so much!!!

@Edspira Жыл бұрын

You're very welcome!

@seefany 8 жыл бұрын

This is so helpful! Thanks for this great video!

@Edspira 7 жыл бұрын

No problem!

@gnlilu6972 2 жыл бұрын

Thank you for this. I used it in my quiz 📝

@nomagent Жыл бұрын

God bless you man! you are a goldmine for this US economy and investors!

@tess2049 3 жыл бұрын

it's 2021 and this video saved my academic life tysm

@anhphuongnguyen7665 5 жыл бұрын

thank you so much!!!

@dancerforever1313 7 жыл бұрын

Do you have a video explaining CAPM? Thanks!

@TheTripMachine 4 жыл бұрын

Thanks Very Helpful video

@max-zl1vm 7 жыл бұрын

Love these videos

@Edspira 7 жыл бұрын

Thank you!

@mritorto1 6 жыл бұрын

should you use expectate rate of return

@darrenzaiat8843 9 жыл бұрын

great explanation :)

@Edspira 9 жыл бұрын

Thank you!

@axeljimenez1561 4 жыл бұрын

Thank youuuuu!

@danielelkadi3499 Жыл бұрын

Thank you!

@preciousjoseph576 Жыл бұрын

Thank you.

@miked6523 4 жыл бұрын

Isn’t the numerator the expected dividend growth formula = Dividend Per Share x (1+Growth Rate)?

@LDacic 2 жыл бұрын

That IS the next year's dividend.

@aden4546 Жыл бұрын

what do we do if cost of equity>constant growth rate of dividends?

@max-zl1vm 7 жыл бұрын

but what about calculating future stock prices?

@Edspira 7 жыл бұрын

You could discount the expected stream of dividends per share (going forward from the future date). For example, let's assume you are interested in what the stock price of a firm will be on January 1, 2047. You could ask yourself what the dividends per share will be after January 1, 2047 and then discount those cash flows to the value as of January 1, 2047 (the present value as of January 1, 2047). The further you get into the future, the more difficult it is to predict what the dividend stream will be, so the estimate of the future stock price will be less reliable.

@JamesonSharp Жыл бұрын

Great Video! 👍🙌👍

@Edspira Жыл бұрын

Thanks!

@DuongNguyen-rg3fr Жыл бұрын

thansk for the beautiful explained video btw. i didnt know that Chef John from Food wishes not only can cooking but also can give finance´s lecture :D

@Edspira Жыл бұрын

Chef John is my brother from another mother 😎

@syukrinazre5617 7 жыл бұрын

Why does required return must less the growth rate? Does this derived from any other formula?

@shaochiavang 5 жыл бұрын

Required return has to always be more than growth.

@vedanthikale310 3 жыл бұрын

Sometimes, The value of the share is also calculated by using P= D (1+g)/r-g. Why is this so? Why do we multiply the dividend with (1+g) in some cases? And where do I apply which formula?

@antonioromero878 3 жыл бұрын

D(1+g)/r-g is solving for the dividend at the end period which is D1. D(1+g)/r-g equates to D1/r-g. If you are assuming that the dividend will have no growth and be sustained as is, you would just use the current dividend amount and exclude (1+g).

@vedanthikale310 3 жыл бұрын

@@antonioromero878 Thank you. That helped 👍🏼

@mrbig334 Жыл бұрын

THE MAN

@hanxue3763 7 жыл бұрын

well explained .. what if the company doesn't pay dividend , how do you get intrinsic value of the company using DDM? thank you for putting this great educational video togehter

@Edspira 7 жыл бұрын

Great question. If the company doesn't pay dividends you could use the Discounted Cash Flow (DCF) model. However, if it is a start-up company that hasn't earned a profit yet you might compare the company to other companies with a similar business model

@sumitlulla3118 6 жыл бұрын

you can use the cash inflows every year

@ZanasRadzys 2 жыл бұрын

Great content but I got only 2 questions. What to do if the Cost of equity is lower than the Dividend Growth? Can we also calculate it not for infinity but let's say for the next 10-15 years..?

@arungautam3454 2 жыл бұрын

In that case your growth would be such that you'd take over every single firm on the planet and maybe a few centuries later, you'd be the master of the universe.

@khethiwentlekeni5103 3 жыл бұрын

Also problematic if growth rate is > cost of equity as the denominator then becomes negative...

@learningislamanditsbenefit7761 8 жыл бұрын

i like ur voice sir

@Edspira 7 жыл бұрын

Thank you!

@rawanwalid2037 2 жыл бұрын

Am gonna ever graduate!

@sanjaygautam8327 2 жыл бұрын

love from INDIA

@Edspira 2 жыл бұрын

😀

@jamesandrews6386 8 жыл бұрын

if the required rate of return is 12%, why would an investor chose a stock with an expected growth rate of 3%?

@swadeep 8 жыл бұрын

+James Andrews That's an expected growth rate of 3% per year in dividends. Doesn't mean company will only grow 3% and stop. Required rate of return is just based on your own preference to determine what you think this stock is worth in the future. Basically it's setting your Margin of Safety. I would see the final intrinsic value from the calculations (based on your input) and then compare with the current stock price. If the market price is below the intrinsic value then the stock is undervalued. Now how much undervalued you want it to be before you would in vest is up to you. But if everything goes as expected and you're happy with the MOS then i don't see a problem investing in that stock.

@jamesandrews6386 8 жыл бұрын

+swadeepc let's say the company decides to use some common equity instead of paying a dividend for one year. My required rate of return is 12%. Let's say that includes dividends and capital gains next year. The company decides not to pay the dividend because they think that they can do as well or better than my required rate. They think using retained earnings on some high IRR projects and paying a 2% dividend next year will meet my demand. If the stock price doesnt go up, but they pay a 3% dividend, then they failed the stockholders. No investor would keep their money in a company that plans to earn less than their required rate. They must use withheld divs to grow enough and pay a large enough dividend to pay what stockholders are expecting or could earn with alternative investments.

@jamesandrews6386 8 жыл бұрын

+swadeepc doesnt the required rate of return have to be lower than the expected growth for this model to work? If anything, that should have been your answer. Basically my question was, why would anyone use this model if the only way it works is if you change the assumptions to something that makes no sense?

@shaochiavang 5 жыл бұрын

@@jamesandrews6386 bc the growth rate is for the dividend..the dividend growth, not the company's growth. And yes, your are right... the dividend discount model is all assumptions. You have to look at a company's historic dividend growth rate and the cost of equity.

@attiah99 10 жыл бұрын

thanks... :)

@shaochiavang 5 жыл бұрын

Shouldn't this equation be D(1+g) / r - g

@jackrussel891 4 жыл бұрын

It is basically the same.Indeed your D(1+g) represent next period D1. He simplified a lot in order that audience get the idea and he made a good job.

@antonioromero878 3 жыл бұрын

Its the same formula. D(1+g)/r-g results in D1/r-g. D(1+g) is solving for the dividend at the end period.

@amongusbot2049 3 жыл бұрын

i bet someone looking for dank doodle memes came across this lol...

@Clifffffffffford 6 жыл бұрын

👍

@joshuamuzanima871 5 жыл бұрын

Anyone else also doing charterd accountin here.....

@arseniotedra4573 6 ай бұрын

#corporatefinance#ibelieve

@RobertoDeMundo 4 жыл бұрын

I searched up DDM as in the meme channel. Now I feel stupid :/

@snowyempress3647 4 жыл бұрын

Dank doodle memesssssssss

@quantstyle6448 5 жыл бұрын

Please note: Many mature firms don't pay dividends. Google, Berkshire, Tesla, Netflix, Amazon, etc. The Ponzi Factor: kzfaq.info/get/bejne/bNiVdZWastPRdZs.html Thank you for addressing non-dividend stocks because a lot of others simply ignore it when they explain this.

@pranavverma16 4 жыл бұрын

2020

@fivefingersinmyass5979 3 жыл бұрын

Nobody cares

@susan88888888able 2 жыл бұрын

this model doesn't work though. It's always way to low.

@andydidyouhear 7 жыл бұрын

There's a whole bunch of assumptions in this model. How reliable can they possibly be?

@antonioromero878 3 жыл бұрын

Everything is subjective.

@RaferJeffersonIII 3 жыл бұрын

So, what if the growth rate is 20% and RE is 10%. 0.1 - 0.2 = -0.1 Negative, doesn’t make sense.

@antonioromero878 3 жыл бұрын

The formula doesn't work if the discount rate is equal to or smaller than the growth rate. That implies that the firm has negative cashflow. Even the most cyclical firms have a positive revenue stream, regardless if net income is negative or not.

@RaferJeffersonIII 3 жыл бұрын

@@antonioromero878 I thought Re was the risk free rate (I.e base rate)? Or an equivalent contemporary return on capital in the sector. As in when you’re doing a lot of other discounting techniques. I’m struggling to understand what the required rate of return is in context. I was looking at this more in terms of Re = equivalent market rate or RFR and Growth = the dividend growth rate.

@antonioromero878 3 жыл бұрын

@@RaferJeffersonIII The required rate of return is just the return you require to compensate you for taking the risk of owning the equity. The "discount rate" D(r). It is very subjective.

@antonioromero878 3 жыл бұрын

If you want to be by the book, then you would use WACC as your discount rate when solving for the required rate of return. Same principle applies when discounting FCFF

@RaferJeffersonIII 3 жыл бұрын

@@antonioromero878 thank you, very helpful