Dividend Discount Model


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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

An estimate of what the price per share of a stock or other security should be, based on the present value of future dividends. This estimate allows investors to determine whether the stock is undervalued or overvalued. If the model says the stock should cost more than it does, investors often buy it. Likewise, if the real cost is higher than the estimate, the investor is likely to sell or refrain from buying.

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.
References in periodicals archive ?
Dividend Discount Model is a procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value.
Using the constant growth dividend discount model, Evelyn computes an intrinsic value of $28.97 [($1.95 x (1 + 0.04)) / (0.11 - 0.04)].
Some evidence on the value of dividend discount models. Financial Analysts Journal 41, no.
The dividend discount model's strict adherence to dividends as cash flows does expose it to a serious problem.
Substituting back into the dividend discount model, we get
Finally, dividing both sides of the dividend discount model by revenues per share, the price/sales ratio for a stable growth firm can be estimated as a function of its profit margin, payout ratio, risk and expected growth.
We consider William Hill shares to be attractively valued and this view is supported by our Dividend Discount Model, where the group ranks in the top quintile.
First, the focus has shifted from valuing stocks through models such as the dividend discount model to valuing businesses, representing the increased use of valuation models in acquisitions and corporate restructuring (where the financing mix is set by the acquirer) and the possibility that financial leverage can change quickly over time.
William Hill remains highly dependent on the performance of its retail business, but the group is looking to increase earnings growth from its interactive betting and through international expansion we consider William Hill shares to be attractively valued and this view is supported by our Dividend Discount Model where the group ranks in the top quintile.
Williamson (1985), 'Some evidence on the value of the dividend discount model'.
The shares are attractively valued, ranking in the second quintile on our Dividend Discount Model and offer good upside potential.
This view is supported by our Dividend Discount Model where Tate & Lyle ranks in the upper quintiles.