By deriving the implied dividend growth rate from earnings growth rates, the method of Donaldson and Kamstra [1996] is extended to provide formal fundamentals valuation fo firms that pay out no dividends. No previous work known to me has succeeded in providing formal fundamentals valuation for non-dividend-paying equity, though there is no shortage of ad hoc approaches. Extension of this method to pricing initial public offerings (IPOs) is also provided. Careful analysis of price-dividend ratios reveals these ratios are not able to provide more than a forward-looking estimate of the mean of discounted dividend growth rates. Finally, it can be formally shown that the price-earnings ratio for firms that pay no dividends is equivalent to and conveys the same information as the price-dividend ratio for firms paying out dividend
