An Evaluation of the Dividend Discount Model and its Extensions

Abstract

The valuation of the stock is one of the most fundamental financial concepts, whereas the Dividend Discount Model is the basis of the stock valuation. The model state that the value of the stock is the sum of the present value of the infinite future dividend. It is, however, impossible for Humans to forecast future dividend accurately. Therefore, the assumption of the future dividend and the extension of the dividend discount model are required. In this paper, the assumption, advantages, and limitations of the general Dividend discount model and its extension, including the Fix dividend discount model, Gordon growth model, Two-stage model, Three-phase model, H-model, Geometric and additive model, and the modified Geometric and additive model, are introduced in this paper, which can be used as a reference for the investors for them to make their financial decision or for the scholars for their researches.