Dividend Discount Model

A method for valuing stocks that calculates their worth by dividing dividends per share by (discount rate minus dividend growth rate)

This model has limited use, as it cannot be used on companies that do not pay out dividends. Growth stocks usually have low or no dividends at all, reflecting their need for capital for expansion. A company may not necessarily pay out all of its earnings in dividends, and shareholders still have fractional ownership in the retained, undistributed earnings.

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