Question

two views on stock sividend valuation models

Answer 1

In my view,. I think you are asking about Dividend discount model which is globally used for calculating value of stock

This model uses dividend and expected growth rate of dividend and required rate of return i.e ke to calculate value of stock

Formula under this model is

P0=Dividend last year(1+growth rate)/ke-g

Where P0= Stock Price

ke= required rate of return

G=growth rate

If dividend expected to be paid is given then we can use that figure instead of dividend last year(1+g) method

It is a very compact way of calculating stock value of blue chip companies but this won't tell you the correct story of the company since it is purely dividend based

My view is that if a company is earning more than the required rate of return of investors then it should not pay dividend since dividend amount will be reinvested by company and profit on that will reflect on the share price in near future