Further Insights Into The Gorden Dividend Discount Model (DDM)

Oct 20

Further Insights Into The Gorden Dividend Discount Model (DDM)

In a previous post, Gordon Dividend Discount Model (DDM) versus FCF Valuation Model, I explored the relationship between dividends being paid versus net income being retained, and how these both balance out within the DDM so that if more dividends are paid, less growth occurs, and if more net income is retained (i.e., less dividends are paid), more growth occurs. A...

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The Proper Use of Beta (β)

Aug 03

The Proper Use of Beta (β)

In my previous post I highlighted the flaws associated with Beta (β), in this post I would like to explore the proper use of Beta. Studies have shown that managed portfolios only outperform the S&P500 Index about 1/3rd of the time in both bear and bull markets – this means that for 2/3rds of the time it is better to just invest your money in an index fund,...

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What is an Incremental Investment Dollar Worth?

Jan 15

What is an Incremental Investment Dollar Worth?

Whether you are an employee, a business owner, or a shareholder, you may have wondered what an incremental dollar of investment is worth to your company. First it depends upon the cost of funding (F%) for an incremental dollar of investment ($I), and second the return (R%) that you earn on that incremental dollar of investment.  The dollar value ($V) created by the...

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PEG – Price/Earnings to Growth Ratio

Jul 15

PEG – Price/Earnings to Growth Ratio

The PEG ratio is another way to try and identify undervalued high growth stocks through a technical screen.  It should not be used alone to select stocks, and should instead be complemented with a fundamental analysis of the market and company including a detailed discounted FCF model to value the stock properly. In a previous post Valuation Multiples Post I...

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Gordon Dividend Discount Model (DDM) versus FCF Valuation Model

Jul 01

Two popular models for valuing equity are the DDM and FCFS models.  The DDM is sometimes referred to the Gordon constant growth model, because it assumes the firm is growing at constant growth rate.  Both of these models are perpetuities of cash flows that have been paid to the shareholder (i.e., D0) or cash flows that are available to be paid to the shareholder...

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