An Evaluation of the Dividend Discount Model and its Extensions

Research Article
Open access

An Evaluation of the Dividend Discount Model and its Extensions

Liya Ma 1* , Zhuoling Xie 2 , Hongyu Zhang 3
  • 1 Hainan Middle school, Haikou. 570100, Hainan, China    
  • 2 Beijing Royal School, Beijing, 100000 Beijing, China    
  • 3 Admiral Farragut Academy Tianjin, Tianjin. 300041 Tianjin, China    
  • *corresponding author 2342024@racoon-edu.com
Published on 21 March 2023 | https://doi.org/10.54254/2754-1169/4/20221049
AEMPS Vol.4
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-915371-17-1
ISBN (Online): 978-1-915371-18-8

Abstract

The valuation of the stock is one of the most fundamental financial concepts, whereas the Dividend Discount Model is the basis of the stock valuation. The model state that the value of the stock is the sum of the present value of the infinite future dividend. It is, however, impossible for Humans to forecast future dividend accurately. Therefore, the assumption of the future dividend and the extension of the dividend discount model are required. In this paper, the assumption, advantages, and limitations of the general Dividend discount model and its extension, including the Fix dividend discount model, Gordon growth model, Two-stage model, Three-phase model, H-model, Geometric and additive model, and the modified Geometric and additive model, are introduced in this paper, which can be used as a reference for the investors for them to make their financial decision or for the scholars for their researches.

Keywords:

Gordon growth model., Dividend Discount Model, review, Limitations, Advantages

Ma,L.;Xie,Z.;Zhang,H. (2023). An Evaluation of the Dividend Discount Model and its Extensions. Advances in Economics, Management and Political Sciences,4,165-173.
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References

[1]. Williams, J.B.: The theory of investment value. No. HG4521 W48. (1938).

[2]. Ma, Q., Yu, J.: Dividend discount model and case analysis. Journal of Yunnan Institute of Finance and Trade (06), 108-109 (2003).

[3]. Bouzouita, Raja, Anil Poudyal, and Arthur J. Young.: Gordon Growth Model with Constant Growth Elasticity of Asset Prices.

[4]. Duncan, Jerome, et al.: The Gordon Growth Model: A Teaching Case. Journal of Business Case Studies (JBCS) 13(1), 23-32 (2017).

[5]. Hurley, William J., and Lewis D. Johnson.: A realistic dividend valuation model. Financial Analysts Journal 50(4), 50-54 (1994).

[6]. Farrell Jr, James L.: The dividend discount model: A primer." Financial Analysts Journal 41(6), 16-25 (1985).

[7]. Malkiel, Burton G.: Equity yields, growth, and the structure of share prices. The American Economic Review 53(5), 1004-1031 (1963).

[8]. Molodovsky, Nicholas, Catherine May, and Sherman Chottiner.: Common stock valuation: Principles, tables and application. Financial Analysts Journal 21(2), 104-123 (1965).

[9]. Fuller, Russell J., and Chi-Cheng Hsia.: A simplified common stock valuation model. Financial Analysts Journal 40(5), 49-56 (1984).

[10]. Hurley, William J., and Lewis D. Johnson.: A realistic dividend valuation model. Financial Analysts Journal 50(4), 50-54 (1994).

[11]. Yao, Y.F. (1997). A trinomial dividend valuation model. The Journal of Portfolio Management, 23(4), 99–103 (1997).

Cite this article

Ma,L.;Xie,Z.;Zhang,H. (2023). An Evaluation of the Dividend Discount Model and its Extensions. Advances in Economics, Management and Political Sciences,4,165-173.

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About volume

Volume title: Proceedings of the 6th International Conference on Economic Management and Green Development (ICEMGD 2022), Part Ⅱ

ISBN：978-1-915371-17-1(Print) / 978-1-915371-18-8(Online)
Editor：Canh Thien Dang, Javier Cifuentes-Faura
Conference website: https://www.icemgd.org/
Conference date: 6 August 2022
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.4
ISSN：2754-1169(Print) / 2754-1177(Online)

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References

[1]. Williams, J.B.: The theory of investment value. No. HG4521 W48. (1938).

[2]. Ma, Q., Yu, J.: Dividend discount model and case analysis. Journal of Yunnan Institute of Finance and Trade (06), 108-109 (2003).

[3]. Bouzouita, Raja, Anil Poudyal, and Arthur J. Young.: Gordon Growth Model with Constant Growth Elasticity of Asset Prices.

[4]. Duncan, Jerome, et al.: The Gordon Growth Model: A Teaching Case. Journal of Business Case Studies (JBCS) 13(1), 23-32 (2017).

[5]. Hurley, William J., and Lewis D. Johnson.: A realistic dividend valuation model. Financial Analysts Journal 50(4), 50-54 (1994).

[6]. Farrell Jr, James L.: The dividend discount model: A primer." Financial Analysts Journal 41(6), 16-25 (1985).

[7]. Malkiel, Burton G.: Equity yields, growth, and the structure of share prices. The American Economic Review 53(5), 1004-1031 (1963).

[8]. Molodovsky, Nicholas, Catherine May, and Sherman Chottiner.: Common stock valuation: Principles, tables and application. Financial Analysts Journal 21(2), 104-123 (1965).

[9]. Fuller, Russell J., and Chi-Cheng Hsia.: A simplified common stock valuation model. Financial Analysts Journal 40(5), 49-56 (1984).

[10]. Hurley, William J., and Lewis D. Johnson.: A realistic dividend valuation model. Financial Analysts Journal 50(4), 50-54 (1994).

[11]. Yao, Y.F. (1997). A trinomial dividend valuation model. The Journal of Portfolio Management, 23(4), 99–103 (1997).

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