How we value Utilities stocks
Model: 3-Stage DDM
The Dividend Discount Model values a stock based on its future dividend payments, discounted to present value. The 3-stage variant captures three phases of a company's life: high growth (years 1-3), a transition period where growth declines linearly (years 4-6), and a terminal stage of stable, perpetual growth (year 7+). As John D. Rockefeller said: "The only thing that gives me pleasure is to see my dividends coming in."
Why this model
Regulated utilities have capped growth but high, stable dividend payouts mandated by regulation. DDM is the canonical valuation method when dividends are the primary return to shareholders. In Vietnam, state-owned utilities often have mandated payout policies, making actual dividends highly predictable.
How it is calculated
Uses actual cash dividends from corporate events (not synthetic). 3 stages: high growth (3yr at estimated rate), transition (3yr linear decay), terminal (perpetual at 2%). Discounts at cost of equity (CAPM). Requires minimum 40% payout ratio.
Best suited to
Regulated utilities, power companies, and water suppliers with stable, predictable dividend policies.