NEXT GENERATION INVESTORS

Some Key Points On the Divident Discount Model(DDM)

  • The Dividend Discount Model (DDM) has several variations but at its core looks to provide investors with the intrinsic value of a company to compare against the market value.
  • This is accomplished by taking the expected sum of all future dividend payments and discounting it back to the present value. This will give an investor an estimate on the intrinsic value of the company.
  • Past dividends paid do not guarantee future payments. Companies who show sustainable growth by keeping a portion of earnings are best suited to grow their company which leads to increases in dividend payments.
  • Investing is a long-term game and you as an investor will want your dividend to grow over time and you will want to be invested in a company growing their dividend.
  • Dividends are either paid or not paid at the end of the day. There is no getting around this and investors have full transparency into seeing this.
  • If the intrinsic value is below the market value, this could signal a buying opportunity but do not let this be the only means by which you decide. Sometimes the market value being above the intrinsic value is justified due to a highly optimistic outlook for the company from investors. Do not overpay for a company’s stock but look into why investors might like a company compared to their competitors and be prepared for when there is a pull back in the market.
  • THIS CAN ONLY APPLY TO COMPANIES WHO PAY A DIVIDEND

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