New Dividend Based Valuations & Formulas
New Dividend Based Valuations & Formulas
.
(1)
ROIC_Non-Factorized DPS Value
= ROIC × Real DPS
.
(2)
ROIC_Factorized DPS Value
= ROIC × Real DPS × (2 - Real DPS Payout Ratio)
.
(3)
ROIC_Non-Factorized Shadow DPS Value
(For Zero Dividends Payout Policy)
= ROIC × Shadow DPS
(4)
ROIC_Factorized Shadow DPS Value
(For Zero Dividends Payout Policy)
= ROIC × Shadow DPS × (2 - Shadow DPS Payout Ratio)
.
(5)
Perpetual Discounted Non-Factorized DPS Model
= DPS ÷ CICC Factor × [ 1 - (1÷CICC Factor)⁹⁹⁹⁹⁹ ] ÷ [ 1 - 1÷CICC Factor ]
.
(6)
Perpetual Discounted Factorized DPS Model
= DPS × (2 - DPS Payout Ratio) ÷ CICC Factor × [ 1 - (1÷CICC Factor)⁹⁹⁹⁹⁹ ] ÷ [ 1 - 1÷CICC Factor ]
.
(7)
Perpetual Discounted Non-Factorized Shadow DPS Model
= Shadow DPS ÷ CICC Factor × [ 1 - (1÷CICC Factor)⁹⁹⁹⁹⁹ ] ÷ [ 1 - 1÷CICC Factor ]
.
(8)
Perpetual Discounted Factorized Shadow DPS Model
= Shadow DPS × (2 - Shadow DPS Payout Ratio) ÷ CICC Factor × [ 1 - (1÷CICC Factor)⁹⁹⁹⁹⁹ ] ÷ [ 1 - 1÷CICC Factor ]
.
(9)
How do we compute the Shadow DPS?
.
We derive the Shadow DPS in the following steps :
.
P/E
= G
= ROIC × (EPS - Shadow Distribution) / EPS
= ROIC × (1 - Shadow Distribution Payout Ratio) — (A)
.
Warren Buffett & Charlie Munger believe that the G & ROIC will converge to each in the long run, ie. G≈ROIC.
Selectively, we choose the convergence point be the Clean Economy Spread.
P/E = G = ROIC - CICC (at convergence point)
.
P/E
= ROIC - CICC
= ROIC × ( 1 - CICC/ROIC) — (B)
.
(A) = (B),
We have,
ROIC × (1 - Shadow Distribution Payout Ratio) = ROIC × ( 1 - CICC/ROIC)
=>
Shadow Distribution Payout Ratio = CICC/ROIC
.
Shadow Distribution Per Share/EPS = CICC/ROIC
.
Shadow Distribution Per Share
= CICC/ROIC × EPS
= CICC / (100×EPS÷Invested Capital Per Share) × EPS
= CICC / (100÷Invests Capital Per Share)
= CICC/100 × Invested Capital Per Share
= CICC Ratio × Invested Capital Per Share
.
Shadow Debt Repayment To Bank Loan
= D/(E+D) × Shadow Distribution
= (D/E)÷(1 + D/E) × CICC Ratio × Invested Capital Per Share
.
Shadow DPS to Shareholders
= E/(E+D) × Shadow Distribution
= 1÷(1+D/E) × CICC Ratio × Invested Capital Per Share
.
CICC Factor
=
{
[1 + 10Y Treasury Notes Yield Ratio]
×
[1 + D/E × (1 + Prime_Ratio + Spread Ratio)]
÷
[1 + D/E]
}
.
CICC Ratio
= CICC Factor - 1
.
CICC
= 100 × CICC Ratio
.
Reference :
The Logic Way of Computing a Clean Invested Capital Cost Factor & Clean Discount Factor