 asked in category: General Last Updated: 1st March, 2020

# What's the dividend valuation model used for?

The 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.

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