Stock Analysis Beta and Dividend Growth - Special Academic Support

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First and foremost, to my way of thinking, the retrieved Beta provides a critical outcome and makes crucial sense for the stock observation: the analyzed stock directly correlates with the ASX300 index, with a positive beta of 1. This means that generally, the stock change delta in percentage representation will be almost the same as the percentage of change of the ASX300 index (Roth et al., 2018). For instance, when the Australian stock market would fall 5%, the same tendency and the same percentage of falling would experience the analyzed company Sealink Travel Group Limited (SLK). Consequently, an investor should be aware of a risk of buying the SLK.AX stock and one of the companies included in the ASX300 index since it is more likely that their correlation will be positive, which does not diversify the investment portfolio.

The dividend growth models enable us to understand the intrinsic value of the company using the dividend yields. More specifically, the dividend growth models divide into two parts: the simple dividend model and the multistage growth model. Their main difference is that when considering the second option, the investor has better flexibility in determining the dividend growth and dividend yield for each year. On the contrary, the single growth model contains only one and constant dividend yield and required rate of return (RRR). As a result, the second stage is more sophisticated, but represents a more detailed companys intrinsic value. Moreover, in case of analyzing the company with unstable dividend payout, which is the Sealink Travel Group Limiteds case, the analyst or investor should consider the second method, which represents a more realistic situation.

To analyze the multistage dividend growth, the 10-year USA government bond yields were expressed in the growth percentage. This is since the analyzed stock is placed on both Australian and American stock exchanges, so that the USAs bond yield might represent the current situation more precisely (Verdickt, 2019). After the two analysis methods, it becomes clear that the stock is undervalued for $2 per share compared to its stock price: $7 versus $5. As a result, even when comparing the intrinsic and factual price, the company is equally undervalued when using a single-growth model for $2 and $1.99 compared to the multistage dividend growth analysis. However, the second method is more effective to use since the company has a relatively unstable dividend yield policy, so that it is critical for investors to anticipate the distinct dividend growth rates. When analysing the situation in November 2020, I would not sell the stock at $7.20 since it is only 20 cents higher than the companys intrinsic value. As a result, the commission for brokerage will result in selling the stock for the price that is lower than the companys intrinsic value.

References

Roth, P. L., Le, H., Oh, I. S., van Iddekinge, C. H., & Bobko, P. (2018). Using beta coefficients to impute missing correlations in meta-analysis research: Reasons for caution. Journal of Applied Psychology, 103(6), 644658.

Verdickt, G., Annaert, J., & Deloof, M. (2019). Dividend growth and return predictability: A long-run re-examination of conventional wisdom. Journal of Empirical Finance, 52, 112127.

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