Definition Dividend Discount Model. Description.
The Dividend Discount Model is a valuation technique
that estimates the price a stock will be trading by calculating the
Net Present Value of all expected future dividend
payments discounted by an appropriate risk-adjusted rate.
Two well-known variants of this model are:
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Stable model. Best suited for firms experiencing
long-term stable growth, the model assumes the firm grows at a rate equal
to the long-term nominal growth rate of the economy (inflation plus real
growth in GDP).
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Two-stage model. Assumes that the company will experience
a period of high-growth followed by a decline to a stable growth period.
Both variants are very sensitive to the assumptions made regarding
growth rates, time frame, and the required rate of return.
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Compare with: Net Present Value
| Discounted Cash Flow |
Dividend Payout Ratio
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