Constant-Growth Dividend Discount Model
You will be marked based on the following categories (equal weighting for each): Data (inclusion and accuracy), Sources (provided and clear), Calculations (properly done), Documentation (formulas and sample calculations provided for the calculations), and Presentation
For this section, you will use the constant-growth dividend discount model to estimate your company’s expected rate of return. You will assume that the company is attempting to achieve a constant growth rate with its dividends and calculate that growth rate. The growth rate plus the expected dividend yield will give the expected rate of return.
Historical Growth:
Calculations:
Calculate the annual dividends that your company paid. Sum the four quarterly dividends paid between May of one year and April of the next year for each of the 5 years of data you have collected.
In some cases the company may have changed its dividend payment dates so that you may get a year with 5 dividends and/or a year with 3 dividends. You may need to make an adjustment so that you are always working with 4 dividends .
Some companies may have paid extra dividends. This will appear either as an added dividend payment or as an extra-large dividend that has been lumped with the regular dividend. If it looks like this has happened with your company you will need to check the appropriate annual report to determine if it was an extra or special dividend, in which case you should not include it in your calculations .
Calculate the annual growth rates of the dividends.
Calculate the average of your 4 annual growth rates.
Calculate the firm’s expected rate of return using your calculated expected dividend, growth rate, and the unadjusted price for April 30 of this year.
Sustainable Growth:
Use the constant-growth dividend discount model to estimate your company’s expected rate of return. T