Dividend Discount Model - Stock Valuation - Formula - How to Calculate - Subjectmoney.com

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The dividend discount model is a model used to determine the intrinsic value of a stock by summing up the present value of all future expected dividends.

There are many different variations of the dividend discount model which are tailored according to the type of company that is backing the stock. For example, a growth stock that's underlying company retains earning to invest in projects uses a different variation of the model than a zero growth company that pays out all of its earnings in dividends. The formula below is an example of the dividend discount model, notice the similarities it has to the formula used to value a bond. Of course unlike bonds, there is a large amount of uncertainty in forecasting the future dividends and sale price that one may receive from a stock.

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