##### Asked by: Ursel Mordecai

asked in category: General Last Updated: 1st March, 2020# What's the dividend valuation model used for?

**dividend discount model**(

**DDM**) is a

**method**of

**valuing**a company's stock price based on the theory that its stock is worth the sum of all of its future

**dividend**payments, discounted back to their present value. In other words, it is

**used**to value stocks based on the net present value of the future

**dividends**.

Hereof, how do you calculate dividend valuation model?

The value of a share of stock is **calculated** by using the two formulas above to **calculate** the value of the **dividends** in each period: (2.00)/(1.08) + 2.10/(1.08)^2 + 2.10/(0.08 – 0.03) = $45.65 per share. Compare to a value of a current share of stock. This is the most important part of the **model**.

One may also ask, how do you find the present value of a dividend stream? **Present Value** of Stock - Constant Growth The formula for the **present value** of a stock with constant growth is the estimated **dividends** to be paid divided by the difference between the required rate of return and the growth rate.

Besides, when valuing stock with the dividend discount model the present value of future dividends will?

When **valuing stock with the dividend discount model, the present value of future dividends will**: change depending on the time horizon selected. remain constant regardless of the time horizon selected. remain constant regardless of the **rate** of **growth**.

What are the assumptions of the dividend discount model?

The **Dividend Discount Model** (DDM) is a quantitative **method** of valuing a company's stock price based on the **assumption** that the current fair price of a stock equals the sum of all of the company's future dividends. The primary difference in the valuation methods lies in how the cash flows are **discounted**.