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Finance
Dividend Discount Model
A way to value a stock by estimating the present value of all future dividends it will pay.
The simplest version (Gordon Growth Model) assumes dividends grow at a constant rate forever. It is most useful for stable, dividend-paying companies. Growth stocks that pay no dividends are valued with other methods.
It's like valuing a rental property by adding up all the future rent cheques, discounted to today.
Real world: Coca-Cola pays steady dividends. Analysts use the dividend discount model to estimate what the stock should be worth today based on expected future dividends and growth.
💡 The dividend discount model turns future cash into today's fair stock price.