On the weekend, I turned over the books that had been sealed on the bookshelf for many years. This 700-page book “Financial Statement Analysis and Securities Pricing” written by Stephen Painman, an American, was a book I wanted to read carefully when I was reading it, but unfortunately I didn’t. Read on, but the section on the dividend rate conversion method is relatively simple and easy to understand. I read it carefully.
I used EXCEL, applied the model, and deduced the current valuations of China Merchants Bank and Yangtze Power, as shown in the table below.
In the model, it is assumed that the holding time is ten years, and by the end of 2032, based on the dividend per share at the end of 2021, an expected dividend growth rate is set, and the current price can be roughly calculated by adjusting the expected annualized return on investment. China Merchants Bank and Changjiang Power will bring investors an approximate annualized rate of return in the next ten years. Investors’ expected return is negatively correlated with the present value of the stock price, and the dividend growth rate is positively correlated with the present value of the stock price.
Changjiang Power, I expect the dividend to reach 1.3 yuan to 1.5 yuan in ten years. According to the dividend at the end of 2021, the annualized dividend growth rate is about 5%. According to the current price, the expected investment yield is about 9.3%. China Merchants Bank, I expect it to be around 3.5 yuan in ten years. According to the dividend at the end of 2021, the annualized dividend growth rate will be about 8%. According to the current price, the expected investment yield is about 14%.
If Changjiang Power is calculated at the price of 25 yuan I called this year, the annualized return on investment will be about 8.5%, which is higher than the requirements of GDP+CPI. Therefore, I will still maintain the 25 yuan of Changjiang Power in 2022 and buy it. And cherish the words.
If China Merchants Bank measures the investment rate of return based on the M2 level of 12%, the current value of the corresponding share price is about 48 yuan. Therefore, China Merchants Bank, which is currently under 30 yuan, is seriously undervalued.
Therefore, by measuring these two companies by my expected rate of return, I think the current price of Yangtze Power has been undervalued, while China Merchants Bank is seriously undervalued. Interested friends can calculate and compare by themselves, or apply this model to other high dividend stocks to compare. This job is boring, but fun.
Market value is a cloud, and dividends are the magic horse. As long as the dividend is in, the stock price will go down and it will go up again!
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