Anthem Project Part I & II final .docx

# Dividend growth model remarks and assumptions

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Dividend Growth Model Remarks and Assumptions Arithmetic Average 18.80% Compound Average 18.00% Regression Growth 18.29% Continuous Compounding 20.07% Log Estimate Regression 20.07% ROE 10.81% Dividend Payout 20.26% Average dividend payout ratio - single_dividendprttm.php?code=ANTM Long-term Dividend Growth Rate 8.62% Dividend Growth Rate (Average of all methods) 16.37% Dividend Yield 1.24% Expected Return 17.61% Based on the dividend data, the calculation of arithmetic average, compound average, regression growth, continuous compounding and log estimate was done. The average dividend per share growth for Anthem Inc during this time frame resulted in an 18.80 percent growth, while the compound average and continuous compounding resulted in 18.00 and 20.07 percent, respectively. Date ROE % 2011 9.55% 2012 10% 2013 10.05% 2014 10.60% 2015 11.11% MBA602 Financial Analysis and Valuation, Group Project –Anthem Inc Valuation Page 17

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2016 9.84% 2017 14.50% Average ROE 10.81% The Return on Equity (ROE) 10.81 percent for was taken as seven-year average of Anthem Inc ROE percentage. This was sourced from Anthem financial data from csimarket.com. Date Dividend Payout Ratio 2011 15.96% 2012 16.52% 2013 17.93% 2014 18.69% 2015 26.65% 2016 27.70% 2017 18.34% Average Dividend Payout Ratio % 20.26% The Dividend payout ratio 20.26 percent was taken as average of seven-year dividend payout ratio. This was sourced from Anthem financial data from csimarket.com. Based on Return of Equity (ROE) and Dividend payout Ratio we calculated the Long Term Dividend Growth Rate [ROE * (1-Dividend Payout)] which was 8.62%. Finally the average of all four percentages for the dividend growth; simple average, compound average, continuous compounding and the long-term was used to calculate dividend growth for Anthem Inc as 16.37 percent. In addition using the Dividend yield sources from (csimarket.com) we were able to calculate the Expected return as well which was 17.61% Constant Growth Model Anthem Inc. has experienced massive growth over the last 4 years resulting in a very high dividend growth rate of 17.61% (Average of all 4 methods). While this growth was led by political and demographic changes in the past we believe that this growth will start to slow to MBA602 Financial Analysis and Valuation, Group Project –Anthem Inc Valuation Page 18
normal levels in the near future. The sudden wave of younger healthier retires will start to fade and Anthems Executives expect to see growth continue at a rate in the high single digits. Most of this growth will stem from increases in the Florida market share as well as mergers and acquisitions. Based on these estimates we believe we will see growth of 8.62% in the upcoming years. While this is significantly lower than the 17.61% calculated from historic returns we feel this is a much more realistic indicator of the future. Based on the Q1 2018 Earnings Call transcripts provided by Seeking Alpha we decided to use the constant growth model to evaluate the stock. While political changes have made the past years volatile things are starting to settle and we believe the constant growth model is an accurate method for this valuation.

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• Fall '14
• Economics, ........., Anthem Inc, Group Project –Anthem

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