Fundamental Analysis -Topic 3 Dividend Discount Model

In the dividend discount model expected future dividends are discounted to the the present value.


For the infinite constant grow rate period Value of the share V is obtained by D1//k-g where D1 = dividend next year, k = cost of equity, and g = constant growth rate per annum expected in the infinite future

The estimates of future dividends are based on the past history of earnings and dividends, current circumstances, and intentions of the company management and other economic agents like banks and government.

Cost of equity is an important input in this method.

For a recent attempt at estimating market risk premium in India study

http://www.iimahd.ernet.in/~jrvarma/papers/WP2006-06-04.pdf