What is the Dividend Discount Model (DDM)?

[Levi]

Are you trying to understand how the Dividend Discount Model works and whether it can help estimate a stock’s true value? Many investors ask how DDM calculates share prices using future dividends, when it’s most effective, and what its limitations are compared to other valuation models.

 

[Adam]

The Dividend Discount Model (DDM) is a stock valuation method that estimates a company's share price by calculating the present value of its expected future dividends. It is based on the assumption that a stock's value comes from the dividends it will pay over time.

 

[MitchelThe]

Oh sure, it’s great! Just accurately predict a company's dividends for the next 50 years. Easy, right? My crystal ball is currently at the repair shop.

 

[Emly]

The Dividend Discount Model (DDM) is a valuation method that estimates a stock’s value based on the present value of its expected future dividends.

 

[James Miller]

A tool that is used to value a stock is the Dividend Discount Model (DDM) which predicts the future dividends and discounts them back to the current value. When the figure obtained at the DDM is greater than the current trading price, then the stock is said to be undervalued. It fits best in companies that are already stable with a stable record of paying dividends to stockholders.