The dividend discount model (DDM), a variation on the idea of present value, is one of the older methods for evaluating a stock. It is sometimes called the Gordon model, after Myron Gordon, an academic who wrote about it in 1959.
The two main ideas behind the DDM are:
1. a stock is a funny kind of bond and so can be valued more or less the same way one would a bond (an idea that hearkens back to the day when the stock market was the exclusive province of coupon-clipping descendants of industrial tycoons); and
2. by far the most important thing to an investor is the dividends he receives, so they, not the company’s profits, should be what is evaluated. Continue reading ‘Dividend Discount Model’
