The Dividend Discount Model

The Dividend Discount Model (DDM) is a method used to estimate a stock’s value based on the idea that its worth is the present value of all future dividends (payments to shareholders). It predicts how much money investors can expect to receive from dividends over time and discounts those future payments back to today’s dollars, accounting for factors like expected growth and risk. Essentially, it helps determine what a stock is truly worth based on its ability to generate income for shareholders in the future.