Unfortunately, nothing is simple in finance and while the DDM sounds simple, it comes with several shortcomings. The dividend growth rate is the annualized percentage rate of growth of a particular stock's dividend over time. Gordons Growth Model, also known as the Dividend Discount Model, is a popular method to consider the value of a firm via the dividend valuation of a firm. DDM is based on the dividends the company pays its shareholders. Cost of Equity vs. Dividend Growth Model | Overview, Formula & Method - Study.com $ What is Scrip Dividend? Shares are market regulated and they always have risks of a certain amount. Dividends per share represent the annual payments a company makes to its common equity shareholders, while the growth rate in dividends per share is how much the rate of dividends per share increasesfrom one year to another. Gordons model is therefore applicable to imaginative dividend policy of a firm. Check all that apply. Since then, I manage my portfolio with a stress free method that enables me to cash out dividend payments even when the market goes sour. Its basically giving you the value of your money making machine based on how much it should pay you back in the future. g Looking back at Wells Fargo in early 2020, it had a dividend of $2.04 per share. There are various discussions about which discount rate to use. Now, the last metric to be used is the expected return of the market. Structured Query Language (known as SQL) is a programming language used to interact with a database. Excel Fundamentals - Formulas for Finance, Certified Banking & Credit Analyst (CBCA), Business Intelligence & Data Analyst (BIDA), Commercial Real Estate Finance Specialization, Environmental, Social & Governance Specialization, Cryptocurrency & Digital Assets Specialization (CDA), Business Intelligence Analyst Specialization, Financial Planning & Wealth Management Professional (FPWM). Move it a fraction, and you're in a totally different galaxy. The Gordon Growth Model is a variation of the discounted cash flow model, which is widely used by investment analysts. The fix is obviously to put everything into perspective.