What is the 'Dividend Discount Model  DDM'
The dividend discount model (DDM) is a procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value. The idea is that if the value obtained from the DDM is higher than what the shares are currently trading at, then the stock is undervalued.
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BREAKING DOWN 'Dividend Discount Model  DDM'
This procedure has many variations, and it doesn't work for companies that don't pay out dividends. For example one variation is the supernormal dividend growth model which takes into account a period of high growth followed by a lower, constant growth period. The principal behind the model is the net present value of the cash flows. To get a growth number, one option is to take the return on equity (ROE) and multiply it by the retention ratio (which is 1the payout ratio).

Supernormal Dividend Growth
A period of time in which the dividends issued on shares of a ... 
Gordon Growth Model
A model for determining the intrinsic value of a stock, based ... 
Dividend
A distribution of a portion of a company's earnings, decided ... 
Dividend Growth Rate
The annualized percentage rate of growth that a particular stock's ... 
Forward Dividend Yield
An estimation of a year's dividend expressed as a percentage ... 
Dividend Yield
A financial ratio that shows how much a company pays out in dividends ...

Professionals
Perpetuities
A perpetuity is a constant stream of identical cash flows with no end. Find out all about them. 
Professionals
Developing Input Estimates Used in the DDM
CFA Level 1  Developing Input Estimates Used in the DDM. Learn the inputs required for using the DDM. Provides sample calculations for the four inputs required to value a security. 
Markets
Understanding the Supernormal Growth Model
The supernormal growth model values a stock thatâ€™s expected to have higher than normal growth in dividend payments for some period in the future. 
Professionals
Common Stock Valuation Methods
NASAA Series 65: Section 9 Common Stock Valuation Methods. In this section fundamental analysis and technical analysis. 
Stock Analysis
Microsoft Is Paying Dividends. Is Its Share Price Undervalued Or Overvalued Based On DDM? (MSFT)
How can you use the dividend discount model to estimate the value the common stock of Microsoft? 
Markets
Valuing A Stock With Supernormal Dividend Growth Rates
If these calculations are off, it could drastically change the value of the shares. 
Investing
Using the Dividend Discount Model
The dividend discount model is a way of applying net present value analysis to estimate the future dividends a stock will pay. Those dividends are then discounted back to their present value. ... 
Professionals
Common Stock Valuation
No one valuation method is perfect for every situation, but by knowing the characteristics of the company, you can select the valuation method that best suits the situation 
Fundamental Analysis
Guide To Excel For Finance: Valuation Methods
DCF There is not a specific function to run a full discounted cash flow model in Excel, but there are a number of tools to make the exercise much more straightforward. As touched upon in the ... 
Professionals
The Dividend Discount Model (DDM)
CFA Level 1  The Dividend Discount Model (DDM). Learn the relationship between dividends and security values. Provides formulas for various dividend discount models.

What does the Dividend Discount Model (DDM) show an investor about a company?
Discover the purpose of the dividend discount model, or DDM, of stock analysis and what it specifically aims to evaluate ... Read Answer >> 
What are the drawbacks of using the Dividend Discount Model (DDM) to value a stock?
Understand how the dividend discount model works, and learn some of the inherent flaws in the model that make it suspect ... Read Answer >> 
When can I use the Dividend Discount Method (DDM) to value a stock?
Learn about the dividend discount model and when it can most appropriately be used to measure the value of a stock by fundamental ... Read Answer >> 
How can I use the Dividend Discount Model (DDM) effectively for a stock with fluctuating ...
Find out how the dividend discount model is applied to stocks with irregular dividend payments and how firms with irregular ... Read Answer >> 
How do I find the information needed for input into the Dividend Discount Model (DDM)?
Learn where analysts and investors can find the three pieces of necessary information that allow them to calculate the dividend ... Read Answer >> 
How is perpetuity used in the Dividend Discount Model?
Learn about how the concept of a stock perpetuity is used in the basic dividend discount model, which is also known as the ... Read Answer >>