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Dividend discount model |
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Dividend discount modelA way of valuing a share based on the net present value of the dividends that you expect to receive in the future.The simplest version of the model assumes that the company's dividend rate remains constant. The 'fair' price of the share is the dividend (in pennies per share) divided by the required rate of return. So if you want 10% a year from your shares, the value of a company paying a 7p dividend is 70p. If you think a return of 8% is satisfactory, the value of the same share is 87.5p.A more complex model assumes that the dividends of the company grow at a consistent rate. The fair price to pay is the next dividend divided by the required rate of return minus the rate at which dividends are expected to grow. So if the 7p dividend is expected to grow at 5% per year, an investor requiring an 12% return would value the shares at (7p x 1.05) divided by (0.12 - 0.05)= (7.35p) divided by (0.07)= 105pSimilar MatchesPassed dividendPassed dividendThe failure of a company to pay a scheduled dividend, usually because of reduced profits. When a company passes a dividend, institutional investors are usually very unforgiving, and the company can expect to see its share price marked down sharply. Accumulated dividendAccumulated dividendA dividend that has reached its due date, but is not paid out. See: Cumulative preferred stock. Extra dividendExtra dividendA dividend paid additionally to the normal dividend when profits of a company are particularly high. Year end dividendYear end dividendAn additional dividend paid at the end of the trading year and based on company profits. Accumulated dividendAccumulated dividendA dividend which is due to holders of cumulative preference shares but which has not yet been paid. The amount is carried forward on the company's books as a liability until it is paid. Further SuggestionsPreferred dividend coverageEx dividend Stock dividend Perfect market view (of dividend policy) Dividend policy Tax differential view (of dividend policy) interim dividend Interim dividend dividend reinvestment plan Liquidating dividend unpaid dividend Dividend Disbursing Agent Insurance dividend Dow dividend theory Dividend trade roll or play Participating dividend Dividend rollover plan Dividend clientele ex dividend Dividend Discount Model (DDM) Ex stock dividends Cum dividend dividend yield Indicated dividend Dividend requirement |
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