Google spreadsheet for DDM

Dividend discount model analysis for selected stocks. AT&T (T) can be analyzed with the standard "terminal" dividend discount model. The current dividend and 3% dividend growth gives fair value close to the current market price if the discount rate is 8.5%. 

The other companies cannot be analyzed with terminal DDM as the dividend is growing at the fast pace. The growth >10% is not sustainable forever as the growth rate for the entire economy is lower, around 2-4%. For these dividend growth companies, the 2-stage DDM or H-DDM is better suited. The table below shows these models applied for a few dividend growth companies. We assume that the high dividend growth rate will last for 10 years (20 years for H-DDM) followed by a slow 3% terminal growth rate. Interestingly, these companies air fairly valued with these assumptions and the discount rate of 9%. This is rather surprising as you could get the same total return with T without having to wait 10 years for the dividend to grow . On the other hand, if the dividend growth continues longer than the 10 years, the dividend growth companies will give larger total return. 

DDMfixed


A link for an editable spreadsheet for the above analysis is below:
The spreadsheet pulls the price and dividend information of the net. You just need to change the ticker symbol. Try it!

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