Discuss the assumptions of the dividend discount model

Discuss the assumptions of the dividend discount model (DDM), the necessary information needed to conduct equity valuation using the DDM, and give one alternative method of valuation from your text that can be used if not all of the necessary information needed for the DDM valuation is available.

You might like to check out one of my favorite investment related blogs. The Motley Fool has really brief lessons and examples on all kinds of financial topics and investments. They have a page on the DDM. Here”s an interesting tidbit from them. Some brokerage firms actually use the DDM so it”s not just an exercise in a book.

“Merrill Lynch (NYSE: MER) uses the DDM model as a component of its market-beating Alpha Surprise Model. JP Morgan (NYSE: JPM) uses the DDM as an important input into the valuation and stock selection process. However, the DDM is only one of many valuation tools used in equity analysis.”

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