Discounted dividend model


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Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the present value of all expected future dividends.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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Proposed by Gordon (1959), the formula is known as the Constant Growth Discounted Dividend Model. It allows us to extract the stock's required rate of return (r) from a security traded at its intrinsic value as:
Are country and size risks priced in the Brazilian stock market?
We use a discounted dividend model to value preferred shares, applying 3% payout ratio and 7% discount rate.
CORRECTED - RMG - Rostelecom Commons and Prefs: HOLD and SELL, Feb 1, 2012
The literature on fundamental valuation includes studies from accounting that explore restatements of the discounted dividend model in terms of accounting information (see Feltham and Ohlson 1995; Penman 1996; Burgstahler and Dichev 1997) and finance papers that often start with or derive the discounted dividend model (see Gordon 1962; Rubinstein 1976; Barksy and DeLong 1993; Campbell and Kyle 1993; Donaldson and Kamstra 1996; Chiang, Davidson, and Okuney 1997; Bakshi and Chen 1998).
Pricing firms on the basis of fundamentals

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