The Three-Phase Dividend Discount Model and the Rope Model

7 Pages Posted: 19 Oct 2005

See all articles by Michael S. Rozeff

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics

Abstract

The ROPE model is a three-phase model that generates estimates of future dividends by incorporating estimates of return on equity and payout ratios rather than assuming that dividend growth rates decline linearly as in the second stage of the three-phase model. Growth firms often experience an increase in dividends as they move toward maturity because rising payout rates counteract declines in return on equity. Although tests are difficult to carry out, they indicate that the ROPE model provides estimates that are closer to market prices than those of the standard three-phase model.

Keywords: dividend discount model, three-phase model, stock valuation, return on equity, payout

JEL Classification: G12, G14

Suggested Citation

Rozeff, Michael S., The Three-Phase Dividend Discount Model and the Rope Model. Journal of Portfolio Management, pp. 36-42, Winter 1990. Available at SSRN: https://ssrn.com/abstract=820025

Michael S. Rozeff (Contact Author)

SUNY at Buffalo - Department of Financial & Managerial Economics ( email )

Buffalo, NY 14260
United States

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