V6. Introduction to the Dividend Discount Model (DDM)

[bigtimeglupek]

well,

it sure does NOT sound like a intro to DDM, more like a review for a senior or entry grad level students, though it's a nice, smooth clear entry. Good job.

Was that self-prep for teaching or just review before a test?

[gowithwind]

Thank you so much. You are much much better than our investment instructor!!!

[tanbrolo]

Price = Annual Dividend divided by (Required rate of Return minus Expected Dividend Growth)

So a common share yielding a $2 annual dividend, with expected annual growth @ 8%, and a dividend growth of 3%, has a value of $40 according to the DDM.

What I'm having trouble with is understanding the donominator figures. Lower denominator = Higher stock price...so a lower required rate of return is better??? It doesn't make sense!

Same stock @ 6% growth (2% less!) is worth $67! Huh???

[savingandinvesting]

On the denominator you have the required rate of return minus dividend growth. The required rate of return is the return that investor's require to purchase a risky asset (to make it attractive) and is often calculated with the Capital Asset Pricing Model. What your numbers suggest is that a stock that has a 6% required return is worth more than a stock that has an 8% required return (which is more risky). That makes sense. The 8% and 6% are not growth rates. Hope that helps.

[tanbrolo]

Oh! I get it now! My mistake was confusing required return with expected growth return. Thank you so much! i just couldn't get my head around how a stock with a higher expected GROWTH rate would be worth less according to the DDM!

Cheers

[bigtimeglupek]

maybe instead wasting your time over you tube you should get back to your text book.. read it thoroughly

1. it's just a theory- model

2. growth rate cannot exceed required rate of return

3. And most of all: how the fuck did you get those figures? do you have any slightest idea how to use DDM?

I appologize for my language to you tube viewers, though I believe that in order to make a any statement One should actually have something to say about it, not just rattle with empty garbage talk

[tanbrolo]

a) that was 7 months ago. You're a bit late.

b) asking questions is never a waste of time. You are clearly not a teacher.

And I'll answer #3...NO ASSHOLE! Seven months ago I was an unpretentious student trying to learn. Someone on YT heped me figure it out. Do you criticize strangers on the Internet often? How's that working for you?

[helpthepoor2learn]

Interesting. Lots of Video.

[zeuszizou]

hey thanks a lot dude.. helped me in my assignment