Dividend Discount

Read the Free Lesson → free · no signup wall

Chapters in this video

  1. 0:00 The rental property analogy for DDM
  2. 1:15 Basic dividend discount math: D over R
  3. 2:22 Gordon growth model adds constant growth
  4. 3:07 When growth rate meets or exceeds required return
  5. 4:25 The D0 versus D1 exam trap
  6. 5:18 DCF for companies that pay no dividends
  7. 5:42 Rapid-fire exam recap

What this video covers

  • Why the dividend discount model (DDM) treats a stock like a rental property valued on future cash flows, and when it is most appropriate for stable dividend payers
  • How to calculate stock value with the basic DDM formula: annual dividend divided by required rate of return
  • When and how to apply the Gordon growth model (constant growth DDM): next year's expected dividend divided by required return minus growth rate
  • Why the required rate of return must be greater than the growth rate, and what happens mathematically when g meets or exceeds r
  • The difference between D0 (dividend just paid) and D1 (next year's expected dividend), and why plugging D0 directly into the Gordon formula produces a wrong answer
  • How to convert D0 to D1 by multiplying D0 by 1 plus the growth rate before using the Gordon formula
  • Why discounted cash flow (DCF) replaces DDM when a company pays no dividends, and how DDM is a special case of DCF

Read the full lesson, free

This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 65 course also includes adaptive practice questions and spaced-repetition flashcards, free through December 31, 2026.

Read the Free Lesson → free · no signup wall