Dividend discount model
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The dividend discount model is a way of valuing a company based on the theory that a stock is worth the discounted sum of all of its future dividend payments. Dividend discount models are used to determine if a stock is a good buy (selling at a lower current price than indicated by the model) or a bad buy (selling at a higher current price than indicated by the model).
The value of a stock is worth all of the future cash flows expected to be generated by the firm, discounted by an appropriate riskadjusted rate. According to the model, dividends are the cash flows that are returned to the shareholder.
Over the long term, the stock price can be modeled as:
 Current Stock Price = Div / (r  g)
 where Div is the current dividend / year
 r is the rate of return
 g is the expected growth rate
External links
 Definitions of dividend discount model on Google
 Digging Into The Dividend Discount Model (from Investopedia)
 Dividend Discount Model on Wikipedia
