Ourpoint of departure is the dividend discount model
, which is one of the simplest models to estimate equity value.
Based on this argument, the methodology to be followed for the study is as such: Analyzing the financials through Dividend Discount Model
and Relative Valuation Method, the equity valuation techniques including fundamental analysis of each company.
Based on combination of Dividend Discount Model
and Gordon Growth Model valuation method we downgrade from our previous recommendation of "BUY" to "HOLD" rating on the stock with a price target of AED1.33, an downside of 5.1% from current levels.
The 2-stage Dividend Discount model
would be more appropriate in this valuation.
We begin by surveying the literature on discounted cash flow valuation models, ranging from the first mentions of the dividend discount model
to value stocks to the use of excess return models in more recent years.
It is also in the context of this chapter that Shapiro compares alternative DCF approaches, in particular the entity/equity method, the adjusted present value (APV) method, the levered equity (LE) method as well as the dividend discount model
(in the appendix) as a rationality check for CAPM-based estimates.
This is the formula for a no-growth dividend discount model
. It is based on the formula for a perpetual annuity (or perpetuity) where the dividend does not increase over time.
Brooks, Robert and Billy Helms, 1990, "An N-stage Fractional Period, Quarterly Dividend Discount Model
," The Financial Review, 25, 651-657.
An N-stage, fractional period, quarterly dividend discount model
. Financial Review 25 (November): 651-57.
The dividend discount model
(DDM) of Williams (1938) provides the basis for most equity valuation models.
Its target price for Fannie Mae's shares remains at $91, indicating almost 17 percent upside potential--a target set using MSDW's dividend discount model
and assuming seven years of 15 percent EPS growth.
The traditional dividend discount model
(DDM) computes a theoretical price by blending the dividends from current and prospective businesses.