Dividend discount model (DDM)

There are two types of investors: The first group is those who buy a stock or index without analysis and trust that the "market return" will be good enough. The second group buys stocks based on some criteria for expected future returns and risk. Needless to say, KISS investors want to know the returns they are getting and belong to latter group. Keeping things simple, the tool of choice is the dividend discount model (DDM).

The DDM calculates the value of all future dividends. Here we will

1. Derive the DDM to calculate value of all future dividends.

2. Calculate the value of next N years worth of dividends.

3. Derive 2-stage DDM for dividend growth companies.

4. Compare 2 stage DDM to H-model DDM.

5. Compare DDM to price appreciation.