The dividend discount model is a method used to predict the value of a company’s stock price. The DDM can help them gauge the intrinsic value of a stock, or the value they think the stock should be trading at, to see whether it is undervalued or overvalued. It’s a model for investors who are interested in buying dividend stocks. The valuation is based on the assumption that the sum total of all the company’s future dividends discounted back to their current value can determine the intrinsic value of a stock. While this model has been around for some time, there are many variations of the model and it can get complicated fast. That’s because to use the model, several assumptions have to be made, which you’ll learn more about below. Understanding Dividend Discount Models A company’s stock price is influenced by many factors but a primary one is how much profit it earns. Companies that distribute dividend stocks give shareholders what are called dividend payments from the profit they earn. Dividend discount models are based on the idea that the sum total of all