Dividend Discount Model Calculator Online.

Dividend Discount Model Calculator

Dividend Discount Model

The Dividend discount model present stock value. Present stock value equal to expected dividend divided to cost of equity less than expected growth rate.

Formula us

Present stock value = Expected dividend / (Cost of equity – Expected growth rate),

Let us consider,

  • present stock value is represents how much the stock is currently worth.
  • expected dividend is payable in one year – is the amount of cash received in the next dividend period.
  • cost of equity– a percentage that represents the minimum rate of return .
  • expected growth rate of dividend it is also a percentage value.

I1.)Constant growth dividend discount model

The growth rate equal to number of value 1 less than dividend payout ratio multiple return on equity.

The Formula us,

Expected Growth Rate = (1 – Dividend Payout Ratio) * Return on Equity.

Let us consider,

  • Dividend Payout Ratioi s the fraction of the company’s earnings paid to the shareholders.
  • Return on Equity is a popular business ratio that informs us how profitable a company is in generating profit from its equity.

Expected Dividend

Expected dividend equal to dividends per share multiple 1 numbers value added to expected Growth rate.

Formula us, 

Expected Dividend = Dividends per Share * (1 + Expected Growth Rate),

2.)Dividend discount model using CAPM – dividend discount model cost of equity

Cost of equity equal to Risk –free rate added to beta multiple market risk premium.The next step is to calculate the cost of equity.  A great CAPM calculator that covers this topic.

Formula us,

Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium,

Let us consider,

  • Risk-free rateis the risk-free interest rate, typically taken as the yield on a long-term government bond in the country where the project is based.
  • Betais market risk – a statistical measure of the variability of a company’s stock price relative the stock market overall.
  • Market risk premiumis a measure of the return that investors require on top of the risk-free rate in order to compensate them for the risk of an investment.

Market risk premium

Market risk premium equal to market rate of return less than risk free rate of return.

Formula us,

Market risk premium = Market Rate of Return – Risk-Free Rate of Return.

Let us consider,

  •   Market rate of return  is a measure of the return that investors.
  • Risk-free rateis the risk-free interest rate, typically taken as the yield on a long-term government bond in the country where the project is based.

Example for Expected Growth rate

The Company X has a dividend payout ratio of 5% and ROE of 3%.

Expected Growth Rate = (1 – Dividend Payout Ratio) * Return on Equity.

Expected Growth Rate = (1 – 0.05) * 0.03 = 0.0299

The answer is = 2.99%.

Example for Expected Divided

The company currently pays $5 dividends,

Expected Dividend = Dividends per Share * (1 + Expected Growth Rate),

Expected Dividend = $5* (1 + 0.0299)

The answer is = $5.0299

Example For Cost of Equity

The risk-free market rate is 4%, the market risk premium is 6%,

Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium,

Cost of Equity = 0.04+ 1 * 0.06 = 0.1

The answer is = 10%

Example For present Stock Value

Present stock value = Expected dividend / (Cost of equity – Expected growth rate),

Present stock value = $5.0229 / (0.1 – 0.0299)

The answer is = $50.19

 

 

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