Dividend Discount Model (DDM)
Values a stock as the present value of future dividends.
The DDM values a stock by discounting expected future dividends at the required rate of return. The Gordon Growth Model is the simplest form, assuming constant dividend growth in perpetuity. It works best for stable, mature dividend-paying companies and breaks down when growth approaches or exceeds the discount rate.
Formula
Related Terms
Discounted Cash Flow (DCF)
Intrinsic valuation by discounting projected free cash flows to present value.
Gordon Growth Model
Single-stage DDM assuming constant dividend growth in perpetuity.
H-Model
Two-stage DDM with linear growth decay from high to stable rate.
Dividend Yield
Annual dividend per share divided by share price — the income return.