Groundlearn / Glossary / Dividend discount model
Dividend discount model (DDM)
Also called DDM, Gordon growth model. A CFA term, defined in plain English with the distinction examiners test.
What it means
Valuing a share as the present value of its expected future dividends.
The exam angle
Requires r > g and a dividend that actually grows at a constant rate. Extremely sensitive to the denominator — a half-point change in g can move the value by a third.
Where it appears in the syllabus
Related terms
- Enterprise valueThe value of the whole business regardless of how it is financed: market capitalisation plus debt and minorities, less…
- Free cash flowCash available after the investment needed to maintain the business.
- Price-to-earnings ratioShare price divided by earnings per share.
- BetaThe sensitivity of an asset’s return to the market’s return — its share of systematic risk.
- Book valueThe accounting value of equity: assets less liabilities as reported.
- Capital asset pricing modelA model stating that an asset’s expected return equals the risk-free rate plus beta times the equity risk premium.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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