Dividend Discount Model

The Dividend Discount Model (DDM) is a widely used approach to value common stocks. Based on certain assumptions that we will describe below, a DDM gives the intrinsic value for a stock.

A common stock can be tough as the right to receive future dividends. A stock's intrincic value can be defined as the value of all future dividend discounted at the appropriate discount rate. In its simpliest form, the DDM use, as discount rate, the investor's required rate of return.