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).

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 ... 
Indicated Yield
The dividend yield that a share of stock would return based on ... 
Present Value  PV
The current worth of a future sum of money or stream of cash ... 
Target Payout Ratio
A target payout ratio is a measure of what size a company's dividends ...

Markets
Digging Into The Dividend Discount Model
The DDM is one of the most foundational of financial theories, but it's only as good as its assumptions. 
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. 
Markets
How To Choose The Best Stock Valuation Method
Don't be overwhelmed by the many valuation techniques out there  knowing a few characteristics about a company will help you pick the best one. 
Professionals
DCF Vs. Comparables: Which One To Use
DCF and Comparables models are widely used in equity valuation. We explain the pros and cons of each method. 
Options & Futures
StockPicking Strategies: Fundamental Analysis
Ever hear someone say that a company has "strong fundamentals"? The phrase is so overused that it's become somewhat of a cliché. Any analyst can refer to a company's fundamentals without ... 
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Why Dividends Matter
Seven words that are music to investors' ears? "The dividend check is in the mail." 
Investing
The 3 Biggest Misconceptions of Dividend Stocks
To find the best dividend stocks, focus on total return, not yield. 
Investing Basics
What Is The Intrinsic Value Of A Stock?
Intrinsic value reduces the subjective perception of a stock's value by analyzing its fundamentals. 
Investing Basics
Valuation Of A Preferred Stock
To find the value of the preferred stock, each future dividend payment needs to be discounted back to the present, and then added together.

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 >> 
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 >> 
Why is the Gordon Growth Model not more widely used?
Learn why the Gordon growth model is not more widely used in valuing the stock price of a company. Understand its inefficiencies ... Read Answer >> 
What can cause the marginal propensity to consume to change over time?
Learn about the dividend payout ratio and dividend yield, what the ratios measure and the difference between the dividend ... Read Answer >> 
What is the difference between the dividend yield and the dividend payout ratio?
Learn the differences between a stock's dividend yield and its dividend payout ratio, and learn why the latter might be a ... Read Answer >>