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The Dividend Discount Model
Robert S. Harris
University of Virginia - Darden School of Business
Kenneth M. Eades
University of Virginia - Darden School of Business
Susan Chaplinsky
University of Virginia - Darden School of Business
UVA-F-1234
Abstract:
This note focuses on the dividend discount model (DDM), or Gordon Growth Model, as it is sometimes called. In practice, the DDM appears in many forms. The note examines its role in estimating the intrinsic value of an equity security and as a model for estimating the required return on equity. The note also explores the DDM's link to price-earnings ratios, a widely followed market multiple, and the sustainable rate of growth.
Number of Pages in PDF File: 12
Keywords: cost of capital, equity valuation, price-earnings ratios, intrinsic value
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Date posted: October 21, 2008
Suggested CitationHarris, Robert S., Eades, Kenneth M. and Chaplinsky, Susan J., The Dividend Discount Model. Darden Case No. UVA-F-1234. Available at SSRN: http://ssrn.com/abstract=909419
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