Dividend discount model ( Gordon growth model)
Description
The dividend discount model is a method of valuing a company’s stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value. In other words, it is used to value stocks based on the net present value of the future dividends.
Related formulasVariables
| P | The current stock price (dimensionless) |
| D1 | The value of the next year's dividends. (dimensionless) |
| r | The constant cost of equity capital for that company (dimensionless) |
| g | The constant growth rate in perpetuity expected for the dividends (dimensionless) |