Series 66: Dividend Discount Model

Dividend Discount Model

A final method of valuing an equity security is called the dividend discount model. Using a dividend discount model (DDM) can determine whether a stock is over- or undervalued. The model arrives at a predicted value for a share of stock by summing the net present value of all future dividends in perpetuity. In short, the DDM is a discounted cash flow valuation, but it is applied to expected dividend payments rather than to expected free cash flows. This model is only