Earnings and dividends prospects of TS Energy Bhd have been analysed by two analysts which is Mr. Adam and Mr. Lee. The company is expected to pay a dividend of RM1 .50 in year one. Mr. Adam predicted that the rate of dividend will grow at 4% for the next of two years, 6% in fourth year, and will grow steadily at 7% in the fifth year onwards. Whilst, Mr. Lee predicted that TS Energy Bhd will pay a constant dividend of RM1 .50 annually. TS Energy Bhd’s beta is 2 times of the market. The risk free rate of return and the market return are 5% and 10% respectively. Required: i. Calculate the intrinsic value of TS Energy Bhd according to the two analysts, Mr. Adam and Mr. Lee. ii. Based on Mr. Lee's prediction on the dividend. Advise whether we should invest in TS Energy Bhd if the stock is currently trading at RM12
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Earnings and dividends prospects of TS Energy Bhd have been analysed by two
analysts which is Mr. Adam and Mr. Lee. The company is expected to pay a
dividend of RM1 .50 in year one.
Mr. Adam predicted that the rate of dividend will grow at 4% for the next of two
years, 6% in fourth year, and will grow steadily at 7% in the fifth year onwards.
Whilst, Mr. Lee predicted that TS Energy Bhd will pay a constant dividend of
RM1 .50 annually.
TS Energy Bhd’s beta is 2 times of the market. The risk free
market return are 5% and 10% respectively.
Required:
i. Calculate the intrinsic value of TS Energy Bhd according to the two analysts,
Mr. Adam and Mr. Lee.
ii. Based on Mr. Lee's prediction on the dividend. Advise whether we should
invest in TS Energy Bhd if the stock is currently trading at RM12
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