Intrinsic Value of a stock

A stock is worth only what you can get out of it. In other words, a stock is the present value of all its future dividends. 

P = sum of (dn * (1+r)^n)     r = interest rate, dn = dividend in year n

Even if a company retains earnings, it must pay dividends later or all money is lost. 

“A cow for her milk

A hen for her eggs

and a stock, by heck, 

For her dividends.

An orchard for its fruit

Bees for their honey,

And stocks, besides,

For their dividends.“

The investment value of a stock is the present worth of its net dividends to perpetuity. 

For stock with constant dividends, P = d/r

PE = d/(r*e)  e=earning per share

or PE = total dividend on common / (r * total earnings on common)

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Posted by Hoan M Do

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