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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (16360)2/5/2003 9:37:31 PM
From: Spekulatius  Read Replies (1) of 78667
 
I found a simple dividend model insufficient. What i do is
1) estimate a growth rate for earnings and dividends for the next ten years (mostly i assume that dividends grow with the same rate than earnings)
2) Calculate a stock value in 10 years based on an estimated PE ratio and the earnings the stock may have after 10 years.
3) calculate the NPV of 10 years of dividends and the stock (discounted with the discount rate, the sum of which is the NPV)

So in my model, I assume that i will hold the stock for 10 years and collect the dividends and then sell the stock. For growth rates, I mostly use a rate somewhat lower than what analysts are estimating.
The debt /equity ratio is just one of the risk factors. other risk factors are: market share, industry, competitive position etc. The higher the overall risk the higher i choose my discount rate.
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