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In a dividend discount model (DDM) the value of a share of stock is modeled as the present value of a future stream of dividends.

In a dividend discount model (DDM) the value of a share of stock is modeled as the present value of a future stream of dividends. Assume the company you are currently thinking about has paid a regular annual dividend for the last 15 years and that these annual dividends have grown on average by approximately 4% a year in each of the last 7 years. Because of the steady annual growth in dividends you have seen over the last 7 years you are planning to use a DDM to estimate the value of a share of stock and you are planning to use a perpetual growth rate of 4% in the DDM.

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