Aurora Borealis
1 July 1994 Financial Analysts Journal Volume 50, Issue 4

A Realistic Dividend Valuation Model

  1. William J. Hurley
  2. Lewis D. Johnson
A new family of dividend valuation models assumes that the discount rate is fixed and models the pattern of dividend payments as a Markov process. The basic model is binomial. It assumes that, in each period, the firm will either keep its dividend payment the same or increase it. A slightly more complex trinomial process assumes the firm can raise the dividend, keep it the same or go bankrupt, paying no dividend. This approach permits analysts to undertake systematic sensitivity analyses that incorporate their own judgments.
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Publisher Information
Association for Investment Management and Research 5 pages doi.org/10.2469/faj.v50.n4.50 ISSN/ISBN: 0015-198X

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