What is the ‘intrinsic value’ of a stock and what does it tell us? The most recent dividend paid by Dangote cement Zambia shares is K4 per share. The company has adopted a new stable dividend growth policy approved by the Board. According to the policy, dividends will grow at a rate of 6 per cent per annum for the foreseeable future. The discount rate is 12 %. Showing your work clearly: Calculate the expected dividends per share at the end of each of the 4th and 5th years. Compute the intrinsic value of the stocks of Dangote cement Zambia? Explain what the intrinsic value will be if the rate of growth of dividends is larger than the discount rate? Compute the intrinsic value of the stocks if dividends were to remain constant?
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
- What is the ‘intrinsic value’ of a stock and what does it tell us?
The most recent dividend paid by Dangote cement Zambia shares is K4 per share. The company has adopted a new stable dividend growth policy approved by the Board. According to the policy, dividends will grow at a rate of 6 per cent per annum for the foreseeable future. The discount rate is 12 %. Showing your work clearly:
- Calculate the expected dividends per share at the end of each of the 4th and 5th years.
- Compute the intrinsic value of the stocks of Dangote cement Zambia?
- Explain what the intrinsic value will be if the rate of growth of dividends is larger than the discount rate?
- Compute the intrinsic value of the stocks if dividends were to remain constant?
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