Wednesday, April 9, 2008

New Video: V5: The Dividend Discount Model (DDM)

As long as we hold a stock, the only cash flow that we receive is the dividend, that the company pays out of it earnings/net income (the remainder is retained earnings). This method of valuing stocks looks at the value of the stock as the value of the cash flows that we can expect to receive as dividends. Some companies don't pay dividends and one can has to make significant assumptions about dividends into the future (which clearly have a big impact on the calculated result) - so like all of the methods, it is not always applicable and certainly not without assumptions and disadvantages - but it does take mean looking and thinking about the real expected cash flows and is certainly a method often used and often spoken about.

No comments: