The Dividend Discount Model: A Comprehensive Guide
The Dividend Discount Model (DDM) is a valuation method used to determine the intrinsic value of a company. It is based on the premise that the value of a stock is the present value of all future dividends that the investor expects to receive. For example, if a company is expected to pay out $1 per share in dividends next year and its dividend growth rate is 5%, then the DDM would value the stock at $20. This is because the investor would receive $1 in dividends next year, $1.05 the following year, $1.10 the year after that, and so on.