Three-Stage Dividend Discount Model

Description

The three-stage dividend discount model is used to value growth

companies and assumes that those experience three distinct stages
—growth, transition, and maturity.

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Three-Stage Dividend Discount Model

Input Data

Assumptions
Dividend (2019) $1,000
Short-term growth rate 10%
Medium-term growth rate 6%
Long-term growth rate 4%
Cost of Equity 5%
Number of Outstanding shares 500

Output

1st Stage: Finite Horizon 2nd Stage: Finite Hor

Year 2019 2020 2021 2022 2023 2024

Act Fcst Fcst Fcst Fcst Fcst
Dividend $1,000 $1,100.00 $1,210.00 $1,331.00 $1,410.86 $1,495.51

Terminal value
Dividend + Terminal Value $1,100.00 $1,210.00 $1,331.00 $1,410.86 $1,495.51
Present value $134,589.53

Percentage of Present value 2.71% 5.91%

2nd Stage: Finite Horizon 3rd Stage:
Perpetuity
2025 2026 2027 2028
Fcst Fcst Fcst Fcst
$1,585.24 $1,680.36 $1,781.18 $1,852.43

$185,242.54
$1,585.24 $1,680.36 $187,023.72

5.91% 1.38%