based on the new coverage? I bought STP when it was put on GS conviction buy list and it immediately dropped $10 points. As it started to bottom anaylsts downgraded it and it almost immediately went up $17 points.
Drunk, the proper way to think about and treat dividends is mentioned on six different slides. You are partly correct that dividends are not important to calculating the DCF value of a project. It is important when the calculation is performed from a stockholder standpoint. So I would recommend re-reading the presentation and calling Dr. Damodaran to let him know the shortcomings of his understanding of DCF. Personally, I don't care if you use DCF or not, or if you use it correctly or incorrectly.
My point for anyone who cares is that if you learned DCF from one of the popular investment books, you probably are doing it wrong.
I don't expect anyone to believe it. I suggest they investigate it. For some, the light will go on. For others, it will remain dark. But it's your money so invest it using any methodology you want.
i assume you went through it, right? no where does it mention dividend is part of the DCF model... you MIGHT be confuse with a model called the dividend model. right, that is another model to evaluate companies... but it is not related to the DCF mode.
It isn't my intention to give DCF lessons here.
This is a pretty good place to start and gives you an idea about the difficulty in applying the technique correctly. It also covers your dividend question. Of course, you can say you will use some sort of short-cut method or some of the black box DCF calculators on the web, but be prepared to come up with numbers that are substantially wrong even if you can estimate a couple of the inputs correctly.
again, explain or educate me why dividend is relevant in the DCF model. as i said, of course dividend is relevant to the OVERALL attractiveness of the stock. the company has NO obligation to pay dividend. the free cash is EXCLUDING the dividend paid to investors. FCF is use to measure the health of the company. you think companies such as citigroup and washington mutual measure their cash flow with dividend taken into account? both of those companies are bad examples since they are S&L... but you got the idea. dividend is NOT relevant to measure the health of a company. maybe i am incorrect, but try to answer my question... and perhaps educate me.
For those of you convinced that the growth rate is predictable well into the future, that the correct discount rate is easy to determine, and that the payment of dividends is not relevant to valuation -- I'm sure nothing I can say will change your mind.
I'm just throwing out a friendly warning about the pitfalls of a methodology that is theoretically unassailable but limited in practical utility. I've seen many articles and book explanations that incorrectly apply the method and anyone who has learned the technique from one of those sources will probably make significant valuation errors [on the high side] at the same time that their confidence level rises from having performed such a thorough "analysis."
i don't understand. maybe you can educate me. my understanding is Free Cash Flow is after all internal operation. there is absolutely no obligation in the company's part to distribute dividends in the DCF model. dividend as i said earlier is what attract investors to the equity OVERALL. so please educate me... maybe i miss something while reading about FCF.
i typically only use DCF as a way to compare companies. since my DCF result for Dr Pepper ended up being pretty close to other superficial valuations (EV/EBIDTA multiples, EV per share, etc) i thought it worth sharing here
dividends definitely are relevant but mgmt say DPS is at least a couple years away from one
Dividends definitely are relevant. They are cash flow to the investor. The 10 year treasury will tell you nothing about growth or the appropriate risk premium. It is a managed rate, not really relevant to valuing equity investments, so just plug in whatever guess at growth that makes you happy. Getting the discount rate from the industry will result in a relative value, not an absolute one. The DCF model is deceptive in its apparent precision where precision is impossible in the vast majority of cases. It is also a bit more difficult to apply than usually imagined. Both Tim Vick and Robert Hagstrom used DCF examples in their books, and both got it wrong! They probably don't even realize it to this day. I guess its major benefit is to give you more confidence than is warranted in making your decision. I know Buffett made some mention of it a few years ago, but his pal Charlie Munger called him on it by pointing out that neither of them ever did a DCF calculation in any of their investment transactions for BRK. Good luck with it.
my [very amateur and presumably high] DCF analysis gives it an estimate of $34.53 based on most recent financials and estimates.
i like DPS but i don't know if "big steal" can be applied to a slow-growing company with more debt than equity. plus it has coke and pepsi over its shoulder
if it hits $20 i'll buy, otherwise it's a speculative play on neither growth nor value