Dividend Discount Model (DDM)
A method to value the common stock of a company that is based on the present value of the expected future dividends.
| dividend discount model A model used to determine the price at which a security should sell based on the discounted value of estimated future dividend payments. Dividend discount models are used to determine if a security is a good buy, such as one that sells at a lower current price than the model would indicate, or a bad buy, such as one that sells at a higher current price than the model would indicate. |
Dividend Discount Model (DDM)
What Does Dividend Discount Model (DDM) Mean?
A procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value; if the value obtained from the DDM is higher than what the shares are currently trading at, the stock is undervalued.
Investopedia explains Dividend Discount Model (DDM)
This procedure has many variations, but it will not work for companies that do not pay out dividends.
Related Terms:
• Discount Rate
• Dividend
• Dividend Payout Ratio
• Dividend Yield
• Gordon Growth Model
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