Analysis of Walmart Inc. Using the Dividend Discount Model

This report presents a Dividend Discount Model (DDM) analysis of Walmart Inc. The DDM is used to determine the intrinsic value of Walmart's stock based on its dividend payments. The report calculates the intrinsic value by considering the dividend per share, the discount rate, and the dividend growth rate. The analysis uses data from Walmart's annual reports and the NYSE, including the current market price, dividend per share, and growth rate. The calculated intrinsic value is then compared to the current market price to assess whether the stock is overvalued or undervalued. The conclusion suggests whether the stock is a viable investment based on the DDM valuation. The report also includes references to relevant financial texts and resources to support the analysis.

Running head: DIVIDEND DISCOUNT MODEL (DDM) 1
Dividend Discount Model (DDM)
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DIVIDEND DISCOUNT MODEL (DDM) 2
The Dividend Discount Model (DDM) of Walmart Inc.
Investors often use the Dividend Discount Model (DDM) in most stock price valuations.
The model assumes that a stock’s intrinsic value is a reflection of the PV of all projected cash
flows of the security. Dividends reflect positive cash flows that a company generates and
distributes to shareholders (Hooke, 2010). According to the Gordon Growth Model (GGM),
dividends grow steadily over time. The Dividend Discount Model (DDM) has two fundamental
finance principles. It holds that an investment’s intrinsic value depends highly on the future net
cash flows it produces. It also considers the time value of money (Frykman & Tolleryd, 2012).
Using the information on NYSE and Walmart’s annual reports, the dividend growth rate
of Walmart is 5.18% while its discount rate (required rate of return) is 11.37%. We use CAPM
to calculate the firm’s discount rate. The current market price of the firm’s stock $95.58 and the
dividend per share is $7.18 (Walmart.com, 2018). The following shows the intrinsic value of
Walmart’s stock.
Stock value = Dividend per share / (Discount rate - Dividend growth rate).
Walmart’s stock value = $7.18 / (0.1137 – 0.0518)
= $7.18 / 0.0619
= $115.99
A company’s stock is overvalued if the DDM valuation (intrinsic value) exceeds the
market price for the share. The value of Walmart’s stock under the Dividend Discount (DDM) is
$115.99. The stock of the company is overvalued since its current price in the market is $95.58.
The stock of Walmart Inc. is a viable investment since it can generate a positive return.
Investors should, therefore, consider buying the stock (Hooke, 2010).

DIVIDEND DISCOUNT MODEL (DDM) 3
References
Frykman, D., & Tolleryd, J. (2012). The Financial Times Guide to Corporate Valuation.
Harlow, United Kingdom: Pearson UK.
Hooke, J. C. (2010). Security Analysis and Business Valuation on Wall Street: A
Comprehensive Guide to Today's Valuation Methods. Hoboken, NJ: John Wiley & Sons.
Walmart.com. (2018). | Save Money. Live Better. Retrieved from https://www.walmart.com/