How to Value Shares and Outperform the Market: A Simple, New and Effective Approach to Value Investing by Glenn martin
Author:Glenn martin [martin, Glenn]
Language: eng
Format: epub
Tags: Business & Economics, Investments & Securities, General
ISBN: 9780857191779
Google: C1kg11T0HqcC
Publisher: Harriman House Limited
Published: 2011-11-07T00:08:58.558522+00:00
To calculate this value, you first need to calculate the end-period FTSE100 yield. This is the projected FTSE100 dividend yield at the end of the five-year period. It takes into account the projected inflation rate for the end of the period.
The calculations for this yield in ShareMaestro are proprietary and complex. The following formula uses the projected end-period inflation rate and produces a similar result to the one produced by ShareMaestro.
Entry in cell A21: End-period FTSE100 yield %
Formula entry in B21: =+(B10/10.5*3)+2.4
This formula might need to be altered if the tax treatment of dividends for basic-rate taxpayers were changed. Since 1997, the dividends actually paid to shareholders by companies are deemed to be net of the basic rate of personal Income Tax.
The end-period share dividend yield is then calculated by adjusting the end-period FTSE100 dividend yield in accordance with the ratio of the target dividend cover to the projected actual end-period dividend cover for the share.
This calculation assumes that by the end of the five-year period the shareâs future sustainable growth will be in line with that of the FTSE100. However, as well as dividend cover, a shareâs prospective long-term sustainable dividend growth will influence the dividend yield. The market will accept a relatively low current dividend yield if it expects the dividend to increase strongly. Conversely, the market will require a higher current dividend yield if it expects the dividend to remain static or to fall.
You can adjust the end-period dividend yield by adjusting the target dividend cover. Consequently, if you expect the shareâs dividend growth to significantly exceed that of the market in Years 5 to 10, you should reduce the target dividend cover (B7) accordingly. Conversely, if you expect the shareâs dividend growth to fall significantly short of the market in Years 5 to 10, you should increase the target dividend cover (B7) accordingly.
For example, if you expect that, at the end of the five-year period, the shareâs dividend growth (with dividend cover remaining unchanged) would be so strong as to produce double the dividend at the end of the next five years than if it merely matched the FTSE100 dividend growth, you would halve the target dividend cover input in B7.
The end-period share dividend yield (E6) is calculated by multiplying the end-period FTSE100 dividend yield (B21) by the target dividend cover (B7) divided by the projected end-period share dividend cover (B8).
Formula entry in E6: =B21*B7/B8
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