The main benefit in owning stocks is the dividends that the company pays to its shareholders. Other than the dividends, being share holder does not provide any perks to speak of (the “free” coffee at the annual shareholders meeting does not count). Given that dividends are the only reason to own the stocks, valuing the price of the stock is relatively straightforward: one only has to figure out how much the future dividends are worth. This is the beauty of KISS investing; the investing decisions boil down to a simple arithmetic calculation. So how much should we pay for a company that pays $10 dividend every year until the earth comes to an end? If you guessed anything over $1,000, you are not seeing the big picture (=The only thing certain in life is death. Or do you really think that you will be here after 100 years (100 x $10 = $1,000) to collect the dividend?) More to the point, having the $10 is more valuable now than next year as we could invest the money. For example, we could put the $10 on a bank CD that has the interest rate of Here Equation (2) assumes constant dividends. Fortunately for investors, the dividends tend to grow over time as the company earnings increase. The NPV of dividends with growth rate g is Equation (3) is known as the dividend discount model and it is the key to KISS investing. We will use it to value the future dividends. If the NPV of future dividends is more than the stock price, we will buy the stock; conversely, if the value of future dividends is less than the stock price, we will not buy the stock (and if we own it, we should consider selling it). To use Equation (3), we need two additional pieces of information: dividend growth rate For example, in 2011 HJ Heinz Co. (HNZ) has the annual dividend of $1.80. With |