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Dividend Discount Model

Dividend Discount Model Definition

Dividend Discount Model - DDM is a method to price a stock by discounting its future dividends to present value. The value of the dividend is discounted by the rate of return that an investor requires for the risk of owning the stock.

                    
     Value of stock = Dividend per share / Discount rate-Dividend growth rate


If the value of the stock exceeds its current price, the stock is undervalued, in the opposite case it is overvalued.

RELATED TERMS
Dividend
Present value




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