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dividend discount model

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Financial Dictionary

Dividend Discount Model - DDM

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.

Investopedia Commentary

This procedure has many variations, and it doesn't work for companies that don't pay out dividends.

Related Links

Digging Into The Dividend Discount Model
How and Why Do Companies Pay Dividends?
Back In Vogue: Dividends

See also: Discount Rate, Dividend, Valuation

Also spelled: DDM

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Financial Dictionary

dividend discount model

A model used to determine the price at which a security should sell based on the discounted value of estimated future dividend payments. Dividend discount models are used to determine if a security is a good buy, such as one that sells at a lower current price than the model would indicate, or a bad buy, such as one that sells at a higher current price than the model would indicate.

Wall Street Words: An A to Z Guide to Investment Terms by David L. Scott.
Copyright © 2003. Published by Houghton Mifflin.
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