Dividend Discount Model

Enzo Mondello
Additional contact information
Enzo Mondello: CfBS Center for Business Studies AG

Chapter 8 in Applied Fundamentals in Finance, 2023, pp 261-287 from Springer

Abstract: Abstract Equity analysis is carried out by means of fundamental and/or technical analysis. Fundamental analysis examines the factors influencing the share price that are relevant to valuation. For this purpose, information on the overall economy, the industry, and the company are analysed. Central to fundamental analysis is a valuation model on the basis of which the intrinsic value is calculated. To arrive at an investment decision, the intrinsic value determined with the valuation model is compared with the market price. If the intrinsic value exceeds (falls below) the market price, the equity security appears to be undervalued (overvalued). The valuation models applied in fundamental analysis can be divided into absolute and relative models. The absolute models can be grouped into cash flow models and value-added models. Cash flow models include the dividend discount model, the free cash flow to equity model, and the free cash flow to firm model. This chapter presents the dividend discount model, which, like the other cash flow models, is used to calculate the intrinsic share value under the going concern assumption. According to the model, the intrinsic value equals the present value of the future dividends that investors can expect when buying stocks. For this purpose, future dividends are discounted with the expected return of the shareholders.

Date: 2023
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-658-41021-6_8

Ordering information: This item can be ordered from
http://www.springer.com/9783658410216

DOI: 10.1007/978-3-658-41021-6_8

Access Statistics for this chapter

More chapters in Springer Texts in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().