Alphabet Inc. (GOOG)
Dividend Discount Model (DDM)
Difficulty: Intermediate
In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.
Intrinsic Stock Value (Valuation Summary)
Alphabet Inc., dividends per share (DPS) forecast
Stock valuation by this method is not possible because prior year DPS is equal to zero.
US$
| Year | Value | DPSt or Terminal value (TVt) | Calculation | Present value at 12.23% |
|---|---|---|---|---|
| 0 | DPS01 | 0.00 | ||
| 1 | DPS1 | — | = 0.00 × (1 + 0.00%) | — |
| 2 | DPS2 | — | = — × (1 + 0.00%) | — |
| 3 | DPS3 | — | = — × (1 + 0.00%) | — |
| 4 | DPS4 | — | = — × (1 + 0.00%) | — |
| 5 | DPS5 | — | = — × (1 + 0.00%) | — |
| 5 | Terminal value (TV5) | — | = — × (1 + 0.00%) ÷ (12.23% – 0.00%) | — |
| Intrinsic value of Alphabet Inc.’s common stock (per share) | $— | |||
| Current share price | $1,231.30 | |||
Based on: 10-K (filing date: 2019-02-05).
1 DPS0 = Sum of last year dividends per share of Alphabet Inc.’s common stock. See details »
Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.
Required Rate of Return (r)
| Assumptions | ||
| Rate of return on LT Treasury Composite1 | RF | 2.20% |
| Expected rate of return on market portfolio2 | E(RM) | 11.62% |
| Systematic risk (β) of Alphabet Inc.’s common stock | βGOOG | 1.06 |
| Required rate of return on Alphabet Inc.’s common stock3 | rGOOG | 12.23% |
1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).
Calculations
3 rGOOG = RF + βGOOG [E(RM) – RF]
= 2.20% + 1.06 [11.62% – 2.20%]
= 12.23%
Dividend Growth Rate (g)
Company does not pay dividends