The valuation model that computes the current value of a stock by dividing next year's dividend by the net of the discount rate minus the dividend growth rate is called the dividend growth model.
Why do we use dividend growth model?
Utilizing the stock's present dividend, the dividend's anticipated future growth rate, and the required rate of return for the individual's portfolio and financial objectives, dividend growth modeling assists investors in determining a reasonable price for a company's shares.
Who proposed dividend growth model?
When valuing a company's stock, the Gordon growth model makes the assumption that the payments it provides to its common equity stockholders will increase steadily over time. Dividends per share (DPS), the pace at which dividends per share are growing, and the needed rate of return are the model's three primary inputs (RoR).
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