What is the 'Multistage Dividend Discount Model'
The multistage dividend discount model is an equity valuation model that builds on the Gordon growth model by applying varying growth rates to the calculation. Under the multistage model, changing growth rates are applied to different time periods. Various versions of the multistage model exist including the twostage, H, and threestage models.
BREAKING DOWN 'Multistage Dividend Discount Model'
The twostage model has an unstable initial growth rate, and can be either positive or negative. This initial phase lasts for a specified time and is followed by stable growth which lasts forever. The problem with this model is that the growth rate from the initial phase is assumed to change to the stable growth rate overnight.
The Hmodel has an initial growth rate that is already high, which then declines to a stable growth rate over time. This model assumes that a company's dividend payout ratio and cost of equity remains constant, which is its biggest downfall.
Finally the threestage model has an initial phase of stable high growth that lasts for a certain period. In the second phase the growth rate declines linearly until it reaches the a final stable growth rate. This model improves upon both previous models and can be applied to nearly all firms.

Coefficient of Determination
A measure used in statistical model analysis to assess how well ... 
Financial Modeling
The process by which a firm constructs a financial representation ... 
Stochastic Modeling
A method of financial modeling in which one or more variables ... 
Black's Model
A variation of the popular BlackScholes options pricing model ... 
Black Scholes Model
A model of price variation over time of financial instruments ... 
Default Model
A type of model used by financial institutions to determine the ...

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? 
Fundamental Analysis
What's the Gordon Growth Model?
The Gordon growth model is used to calculate the intrinsic value of a stock today, based on the stockâ€™s expected future dividends. It is widely used by investors and analysts to compare the predicted ... 
Investing
Understanding Financial Models
A financial model is a representation of some aspects of a firm or given security. It uses historical numbers to create calculations that inform financial recommendations or predict future financial ... 
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. 
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. 
Investing Basics
How To Choose The Best Stock Valuation Method
There is no single valuation tactic that works in every situation. But a companyâ€™s characteristics provide clues to investors about the best method to use. 
Active Trading
The Fed Model And Stock Valuation: What It Does And Does Not Tell Us
Learn about this popular stock market valuation model and how accurate it has been over the years. 
Forex Strategies
How To Build A Forex Trading Model
The forex market is volatile, but a forex trading model with clear, stepbystep rules based on a sound strategy can help decrease losing trades. 
Professionals
The Best Financial Modeling Courses for Investment Bankers
Obtain information, both general and comparative, about the best available financial modeling courses for individuals pursuing a career in investment banking. 
Forex Strategies
How to Build A Forex Trading Model
Forex trading markets work 24/7, providing ample opportunities to make profitable trades. How can you build a profitable forex trading model for yourself?

What are the advantages and disadvantages of the Gordon Growth Model?
Understand the advantages and disadvantages of using the Gordon Growth Model to value a company's publicly traded stock. ... 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 >> 
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 >> 
What is the point of developing a business model?
Learn some of the benefits of developing a business model and how business models are used. Consider an example of business ... 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 do subscription business models work?
Understand how a subscription business model works and why companies prefer a subscription business model over a traditional ... Read Answer >>