Dividend discount model
Dividend discount model (DDM) is a way of valuing a share based on the net present value of the dividends that you expect to receive in the future. According to the DDM, dividends are the cash flows that are returned to the shareholder.
FY 2002 2003 2004 2005 2006 2007F 2008F 2009F
Share price 0.155 0.150 0.230 0.370 0.450 0.450
Dividends per share 0.005 0.012 0.014 0.012 0.013 0.019 0.0178 0.020
Dividend Growth 0.0833 0.258 0.014 0.014
Dividend rates are expected to grow for FY2007 to $0.019 excluding the special dividend, and then grow at a constant rate for the next 2 years at a rate of 14%.
Forecasted Dividend Growth Rate =
= 3
= 0.14
According to the DDM, where dividends are expected to grow at a constant rate and the holding is perpetual, the value of the share is:
Where g is the dividend growth ra ...