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In financial economics, the dividend discount model (DDM) is a method of valuing the price of a company's capital stock or business value based on the assertion that intrinsic value is determined by the sum of future cash flows from dividend payments to shareholders, discounted back to their present value.
In a special case when a company's return on equity is equal to its risk adjusted discount rate, SPM is equivalent to the Gordon growth model (GGM). However, because GGM only considers the present value of dividend payments, GGM cannot be used to value a business which does not pay dividends. Also, when a firm's return on equity is not equal to ...
Myron Jules Gordon, FRSC (October 15, 1920 – July 5, 2010) was an American economist. He was Professor Emeritus of Finance at the Rotman School of Management , University of Toronto . In 1956, Gordon along with Eli Shapiro, published a method for valuing a stock or business, now known as the Gordon growth model .
Dividend growth modeling helps investors determine a fair price for a company’s shares, using the stock’s current dividend, the expected future growth rate of the dividend and the required ...
When the dividend payout ratio is the same, the dividend growth rate is equal to the earnings growth rate. Earnings growth rate is a key value that is needed when the Discounted cash flow model, or the Gordon's model is used for stock valuation. The present value is given by:
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Stock valuation is the method of calculating theoretical values of companies and their stocks.The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit from price movement – stocks that are judged undervalued (with respect to their theoretical value) are bought, while stocks that are judged overvalued are sold, in the ...