Summary: <br> Welcome to Investing for Beginners podcast this is episode 35. Andrew and I are going to talk about the dividend discount model today.<br> So we’re going to have a little conversation about a formula, this is something we haven’t done a whole lot of, and without any further ado I’m going to have Andrew go ahead and start us off<br> What we will learn today:<br> <br> * What the dividend discount model is<br> * How to find the info to plug into the model<br> * Intrinsic value can be found using this formula<br> * Works best for dividend-paying companies<br> <br> Andrew: Yeah, actually I was just going to give a little intro. So Dave and I are working on something on the side. Still too early to say what it is yet.<br> But I’m excited because we’re working on something big, and it’s something that people have asked for. I think it’s one of the best things you know we’ve ever done even with all these podcast episodes.<br> So today’s episode is going to be kind of derived from that. Some of the lessons that we’ll learn here really parallel. So I’m excited for this one. I also wrote an email earlier today about dividends, and obviously, I do that a lot.<br> But in a way it was relating dividends with evaluations, so this is kind of like perfect timing to take what we’ve been working on. Take what Dave’s been working on behind the scenes and give you guys a sneak peek of what’s to come in the future.<br> Dave wanted to start off with a dividend discount model or models that you have been worth looking at any kind of studying.<br> Dave: okay, all right awesome so well thank you for that. So dividend discount model, so this is a formula, and we’re going to talk a little bit about that formula.<br> The dividend discount model is one of the easiest ways to value a company that pays a dividend. And there are many ways to do valuations; there is the Benjamin Graham formula, there’s a discount of cash flows.<br> Dividend discount model is one of the easiest ones to do. There are only three inputs to it, so it’s super simple. You don’t have to have higher math skills to be able to do this. It’s not extremely complicated; there’s not lots of different variables and formulas and things you have to figure out.<br> It’s information you can gather pretty easily and put it together, and it can give you kind of a framework and a guideline to look at when you’re trying to value a company. Especially a company that pays dividends, so what this company, what this model will work great for are any company that’s going to pay a dividend.<br> So whether it’s going to be something like a REIT, which we talked about last week, whether it’s going to be just a normal company like let’s say Microsoft. Or somebody of that ilk you know anybody that pays a dividend this will work for.<br> What it won’t work for are companies that do not pay a dividend so, for example, Tesla, Facebook, and Netflix. So notice those are really big companies, Google none of these companies pay a dividend so this particular model will not work with them.<br> So that being said let’s talk a little bit about the formula. So the formula is also known as the Gordon growth formula, there’s a professor back in the 1960s that popularized it.<br> It was created in the 1930s, but in the 1960s it’s kind of really when it became more popular and was utilized much more. When we buy a stock when an investor when we buy a stock we expect cash flows to come from two areas. One is the current and the future dividend payments. The other one is to increase is an increase in the value of the company as its being held.<br> So as we don’t hold a company over the course of its lifetime, as it goes up in value that’s going to be one of the other cash flows that we’re goi...
