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I want to find the intrinsic value of a stock which pays out dividend but not a significant amount.
In particular, is there a way to incorporate the dividend payout in the discounted cash flow analysis?
Finally, does the dividend discount model include the future selling price of the stock?
If there is any other approach to analyze such stocks, kindly let me know. Some references for studying such techniques would be highly appreciated.
is there a way to incorporate the dividend payout in the discounted cash flow analysis?
Sure - it is a cash outflow to the company and a cash inflow to the investor, so they could be included (and discounted) either way depending on how you're looking at the value of the stock.
does the dividend discount model include the future selling price of the stock?
It can, but since there's not an objective way to calculate the future price of a stock, the DDM treats it as a perpetual cash stream, never selling it, so the final stock price (really the stock price at any time after purchase) is irrelevant in that model.
If you wanted to incorporate a "final" price for the stock (however you come up with that), then you could use a more general discounted cash flow model, discounting each dividend and the final sale price individually at some rate.
There are many ways to value stocks in general, including fundamental analysis, relative valuation (i.e. ratios), technical analysis, and cash flow models. None of them are always right and have to be taken in context.
