Friday, June 21, 2019

How does the dividend discount method (DDM) work?

The DDM is very similar to the discounted cash flow (DCF) valuation method; the difference is that DDM focuses on dividends. 

Just like the DCF method, future dividends are worth less because of the time value of money. Investors can use the DDM to price stocks based on the sum of future income flows by the risk-adjusted required rate of return.

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