1. Discounted Dividend Valuation (DDM)

• Basic concept of valuing stocks using discounted dividend models.
• Application of the Gordon Growth model and other valuation models.

2. Valuing Common Stock Using a Multi-Period DDM

• Calculation of dividends over multiple periods.
• Example calculations.

3. Gordon Growth Model

• Description of the model and an example of valuing common stock.
• Input parameters: dividend growth, required return, beta.

4. Valuing Preferred Stock

• Example of valuing preferred stock with zero dividend growth.

5. Implied Growth Rate Calculation

• Calculation of the implied growth rate based on current stock price and dividend yield.

6. Calculating the Required Return Using the Gordon Growth Model

• Formula for calculating the required return for stocks.

7. Justified P/E Ratio

• Estimated and actual P/E (Price-to-Earnings) ratio based on dividend growth and required return.
• Example of calculating justified leading and trailing P/E.

8. Advantages and Limitations of the Gordon Growth Model

• Strengths: simplicity and applicability to stable firms.
• Limitations: sensitivity to the difference between required return and growth, limited applicability to unstable firms.

9. Two-Stage Dividend Discount Model

• Model for companies with variable dividend growth.
• Example calculation with a transition from rapid growth to stable growth.

10. H-Model

• An alternative approach for companies with gradually declining dividend growth.
• Example calculation using the H-model.

11. Three-Stage Model

• Model for companies going through three stages of growth: rapid growth, declining growth, and stable growth.
• Example calculation.

12. Sustainable Growth Rate

• Sustainable growth: formula based on earnings retention and ROE (Return on Equity).
• DuPont analysis of profitability and its components (profit margin, asset turnover, equity multiplier).

Materials for the week 6

This week, we continue working on the issues related to dividend discount valuation.

Lecture:

Seminar assigment