What Is the Discounted Dividend Model?

Dividend Discount Model, or DDM for short, is one of the most basic models of stock intrinsic value evaluation. Williams and Gordon proposed the discounted dividend model (DDM) for the valuation of companies (stocks) in 1938, laying a theoretical foundation for the quantitative analysis of virtual capital, assets, and company value. Basic analysis provides a strong theoretical basis.

Dividend discount model

The stock price is the result of the market supply and demand relationship, and does not necessarily reflect the true value of the stock, and the value of the stock should be reflected in the company's continuing operations. Therefore, the value of a company's stock is determined by the company's annual dividends. The amount of dividends is related to the company's operating performance. After all, the intrinsic value of a stock is determined by the company's performance. Directing investment decisions by studying the intrinsic value of a company is the practical significance of a discounted dividend model.