Dividend Value Calculator

• The Dividend Value Calculator is intended to promote awareness of the importance of dividends in stock valuations.
• The model is still in its beta version and we welcome suggestions as to how it can be improved.

Example (1)
An Australian investor may have a stock price of 2000 cents; a risk-free rate of 6% and a top personal tax rate of 48%. The company may have a tax rate of 30% and expect to pay 80 cents in fully-franked (100%) dividends which are expected to grow at an average rate of 10% over the next 15 years. The stock is projected to be eventually sold at a conservative dividend yield of 5% (compared to the current 4%). Half of capital gains (50%) are taxed at the top personal rate of 48%. The resultant present value (at the risk-free rate) is 4919 cents, providing a 146% margin of safety.

Example (2)
If the same investor in (1) has a top personal tax rate (and capital gains rate) of 10%, the margin of safety is very similar at 147%. The lower tax rate has two effects that tend to offset each other:

• after-tax cash flows, from dividends and the end sale, are higher because of the lower tax rate; but
• their present values tend to be lower because of the higher after-tax discount rate (risk-free rate).

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