Fundamental Glossary / Valuation Methods
Dividend Discount Model (DDM)
A valuation that discounts expected dividends to the present.
Formula
Value = sum of expected dividend in year t / (1 + cost of equity) ^ t. With constant growth this becomes next dividend / (cost of equity - growth).
What it means
If the only cash a shareholder ever receives is dividends, the value of the share is the present value of those dividends. Buybacks can be included as a cash distribution.
The model fits mature, dividend-paying firms. It fits a non-dividend growth firm only if you forecast the dividends that begin later, which pushes all the value into a distant guess.
How to read it
A DDM value well above the price means you expect more dividend growth, or a lower required return, than the price implies. Write those expectations down before you trust the gap.
What to watch
A dividend that is not covered by free cash flow cannot grow at the rate in the model. The formula will not warn you. The cover has to be checked outside it.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.