1Look up the dividend history for your stock.
Type KO Equity DVD GO (or your chosen ticker). Record the last 5 years of annual dividends:
| Year | Annual Dividend/Share | Growth from Prior Year |
|---|---|---|
What is the average annual dividend growth rate over this period?
2Find ROE and payout ratio.
Type KO Equity FA GO (Financial Analysis). Navigate to the Income Statement and Key Ratios tabs.
| Field | Value |
|---|---|
| Return on Equity (ROE) | |
| Earnings Per Share (EPS) | |
| Dividends Per Share (DPS) | |
| Payout Ratio (DPS/EPS) | |
| Retention Ratio (b = 1 − payout) |
Compute the sustainable growth rate:
g = ROE × b = __________ × __________ = __________
How does this compare to the historical dividend growth rate from Part 1?
3Find the required return (k) via CAPM.
Type KO Equity BETA GO for beta, and GT10 Govt GO for the risk-free rate.
| Field | Value |
|---|---|
| Beta (β) | |
| Risk-free rate (rf, 10yr Treasury) | |
| Market risk premium (use 8%) | 8% |
| k = rf + β × 8% |
4Apply the Constant-Growth DDM.
Using D₁ = next year's expected dividend, g from Part 2, and k from Step 3:
| Field | Value |
|---|---|
| D₁ (next expected dividend) | |
| g (sustainable growth rate) | |
| k (required return) | |
| V₀ = D₁ / (k − g) | |
| Current market price |
Is the stock overvalued or undervalued according to your DDM? By how much?
5Compare P/E ratios across industry peers.
Type KO Equity RV GO (Relative Value) to see peer comparisons. Alternatively, use EE for earnings estimates.
| Company | Ticker | P/E (Trailing) | P/E (Forward) | EPS Growth Est. |
|---|---|---|---|---|
| Your stock | ||||
| Peer 1 | ||||
| Peer 2 | ||||
| Industry Average | — |
Is your stock's P/E ratio above or below the industry average? What might explain the difference?
6Final assessment: Compare your two valuations.
| Method | Your Estimate | vs. Market Price |
|---|---|---|
| DDM intrinsic value | ||
| P/E comparable (industry avg P/E × EPS) | ||
| Current market price | — |
Do your two valuations agree? What assumptions drive the biggest differences? Would you buy, hold, or sell this stock based on your analysis?
| Command | Function | Example |
|---|---|---|
| DVD | Dividend History | KO Equity DVD |
| FA | Financial Analysis | KO Equity FA |
| BETA | Beta Analysis | KO Equity BETA |
| RV | Relative Value (Peer Comparison) | KO Equity RV |
| EE | Earnings Estimates | KO Equity EE |
| GP | Price Chart | KO Equity GP |
| GT10 Govt | 10-Year Treasury Yield | GT10 Govt GO |