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What Is the DDM (Dividend Discount Model)?

By Mike Price – Updated Oct 24, 2024 at 9:52AM

Key Points

  • Dividend discount model (DDM) evaluates stock based on future dividends, using cost of capital and growth rate.
  • Most common DDM, the Gordon Growth Model, calculates intrinsic stock value by dividing next year's dividend by (cost of capital minus growth rate).
  • Accuracy of DDM depends on reliable dividend forecasts and stable growth rates; less effective for new or inconsistent dividend payers.
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