The dividend discount model (DDM) estimates the intrinsic value of a stock by forecasting future dividends and discounting them back to the present value using a growth rate. It assumes that a company’s dividend growth rate will remain constant over the foreseeable future.
The DDM is a widely used valuation model because it is relatively simple to apply and requires only a few inputs. However, it is important to note that the accuracy of the DDM is dependent on the accuracy of the forecasted dividend growth rate.