Dividend Discount Model (DDM)

What this video covers

• Why the dividend discount model (DDM) treats a stock's intrinsic value as the present value of all future dividends, and why the time value of money is baked into the logic
• The Gordon Growth Model formula: next year's dividend (D1) divided by the required return (r) minus the constant growth rate (g)
• The single biggest exam trap: D1 is NEXT year's expected dividend, so if the question hands you the current dividend (D0), you must multiply by (1 plus g) before plugging in
• Working a full calculation step by step to an intrinsic value, then comparing it to the market price to decide whether the stock is undervalued or overvalued
• Why the formula requires r to be strictly greater than g, and what happens to the math when growth equals or exceeds the required return
• Which companies the DDM actually fits (mature dividend payers like utilities, consumer staples, blue chips) and which ones it cannot value at all (non-dividend-paying growth companies, erratic dividend histories, startups)
• Why the DDM ignores capital gains entirely, and how that limitation shows up in exam scenarios