Lesson 5 of 9 · All lessons in this module
- Intrinsic value, mispricing and the three model familiesVideo lesson
- Dividends, splits, buybacks and the payment timelineVideo lesson
- Present value models: DDM and FCFEVideo lesson
- Preferred stock and the Gordon growth modelVideo lesson
- Multistage dividend discount modelsVideo lesson
- Price multiples and the method of comparablesVideo lesson
- Integrated cases: why multiples differ, the justified P/E and comparables
- Enterprise value multiples, asset-based valuation and choosing a modelVideo lesson
- Integrated cases: growth from dividend history, enterprise value and reconciling models
Lesson 5 of 9 · 14 min
Multistage dividend discount models
When growth will change, forecast the dividends of the unusual period one by one, value everything after it with the Gordon model as a terminal value at time n, and discount both back to today.
In short
- A company that pays no dividend yet can still be valued with a DDM by assuming when dividends start and how they grow.
- Two-stage DDM: high growth for n years, then sustainable growth forever.
- Terminal value sits at time n, so it is discounted n periods.
- Gordon: mature companies. Two-stage: companies moving from high to mature growth (or whose growth will recover toward normal). Three-stage: young companies just entering their growth phase.
- The terminal value usually supplies most of the total, so long-run assumptions dominate the answer.
Unlock this lesson free for 7 days
Create a free account to get 7 days free: every lesson, video and flashcard, and the question bank. No card needed.