dividend discount model (DDM)

The dividend discount model (DDM) is a method used to estimate a stock's value based on the present value of its expected future dividends. It assumes that the value of a stock is equal to the sum of all its future dividends, discounted back to today using a required rate of return. Essentially, it helps investors determine what a stock is worth by considering the income it is likely to generate over time. This model is most useful for companies that regularly pay dividends, providing a way to assess if the current stock price is fair based on its dividend prospects.