Definition of dividend discount model
Dividend discount model:
Discounted cash flow techniques are used to value investments. The cash flows associated with the investment are projected out into the future and discounted back to present day value. In theory, the maximum that an investor would pay for an investment is the present value of the future cash flows that will be received. A dividend discount model forecasts the cash flows to shareholders (ie the dividends) and discounts them back to present day values to give the value of the share today.
See our full Online Financial Glossary