Stock Markets Exposed
Intrinsic Value?
Here is my question. The current annual dividend per share is 1.75. Three years ago the dividend was 1.35. The stock is trading for $50 / share. If I am requiring 12% compunded annually to invest in the stock. What is the stock intrinsic value?
Public Comments
- You can use the Dividend Growth Model to value your investment based on the current dividend, estimated growth in the dividend and your required return. The current dividend is 1.75 and based on 3 yr history (assuming this growth will continue) your dividend is growing at 9.04%. Your required return is 12%. The stock will return 12% if you were to buy it at no greater than $64.37. Value = (Current Dividend x (1+ dividend growth)) / (Required Return - Dividend Growth) But this value is only loosely in line with the concept of "intrinsic value". Instead of explaining the concept of "intrinsic value" here, let me point you to the definitive source on intrinsic value - Warren Buffett. see pp 77-78 of the attached link
