Talk:Dividend Discount Model

Discussion invited!

I'm not sure whether much more could be said on this subject. The formulas are, afaik, correct. The assumptions are enumerated, and the practical limitatiations arising from those assumptions are described.

In my experience (but I'm into bonds and macro economics, and try to stay away from equities as far as possible) the DDM is not used much in day-to-day equities portfolio management. Theoretically, it is no doubt quite sound, but reality as often as not refuses to behave according to the textbooks.;)

I think this article could be listed as "fit for pulication", in the sense that it is, in its present form, correct as to facts and sufficiently complete.

Best regards, Martin van Dalen 13:38, 20 November 2006 (CST)

Almost-finished?

Hi all,

I thinks that this article is the example of an "almost-finished article". Everyone interested in that matter should take a look at it. Annote it, modify,.. etc.. and then, in some times (one week..?), it should be removed from the workgroup.

As soon as it someone found that an article is "almost-finished", we should notice it in the Talk page. Anh Nguyen 01:36, 21 November 2006 (CST)

Glad to read you agree with me. BTW, does anybody know what the formal procedure is for approval? Martin van Dalen 13:33, 23 November 2006 (CST)

Hi, I think that we should move this article in the for approval section Anh Nguyen

Proposal to delete

This model is tautological. It says no more than that the value of a share in a company is determined by its future dividend payments. Since dividends are the only benefit that a company pays to a shareholder, that is a circular statement. The fact that future payments have to be discounted in order to arrive at their present value is also a tautology, reflecting nothing beyond the definition of the concept of discounting. I suggest that CZ should avoid taking up readers' time with such trivialities and that the model deserves no more than a dismissive mention in a more general article. Nick Gardner 16:12, 27 February 2008 (CST)

Hi Nick,

Even if I find that article also quite tautological and basic I think that we should keep it as it is. As CZ readers come from all specialities, a good introduction on basic economics stuff should be present. From my experience as lecturer, it is not so obvious for everyone that the value of a company is determined by future dividends.

Removing it should be discussed about the level of CS articles. Should we or shouldn't we have "introductory articles" ? Anh Nguyen 02:46, 28 February 2008 (CST)

Hello Anh

Point taken - I agree that we cannot do without tautologies. But I suggest that the subject is now adequately covered in the article on Financial economics - on which I should, of course, value your comments. Nick Gardner 06:44, 28 February 2008 (CST)

Article name

I looked at a bunch of seemingly-authoritative sources, and they seem roughly evenly divided as to whether to use "Dividend discount model" or "Dividend Discount Model". The text in the article should match the title, though... J. Noel Chiappa 10:16, 13 April 2008 (CDT)

Nomination for Approval

I believe I've answered Aleta's question marked in the comment of heading, and have followed Noel's suggestion to move to a title with capitalization that's consistent with the text. (Thank you, both!) I agree with Anh that this would be useful introduction for a beginning student. Given that its accuracy appears well agreed upon, I see no reason why this article shouldn't be nominated for approval. Stephen Saletta 23:09, 17 April 2008 (CDT)

As I have noted above, I am not convinced of the need for this article in addition to those on financial economics and discounted cash flow, but in any case I suggest that several changes should be made before this article is approved:

• The statement that the model is widely used requires qualification to avoid giving the newcomer the impression that it is the principle method used to value equities. It seems unreasonable to ignore the equity valuation methods described in the article on financial economics and not to provide a link to that article. (The reference to CAPM as an input to the model might then be dropped; as it stands it might be confusing to a newcomer).
• It also seems appropriate to note that the method described can be applied not only to dividends but to any future cash flows, and to provide a link to the article on discounted cash flow.

• The list of assumptions should be revised to note that no assumption other than the first is necessary, provided that it can be assumed that future dividends are known to everybody - including future purchasers. If it is assumed that both the timing and amounts of the payments are known, it is certainly unnecessary to assume that payments are made every year, or that they continue for ever.
• To conform with the format that has generally been adopted for economics articles, the algebraic passages should be transferred to the tutorials page.

Nick Gardner 05:18, 19 April 2008 (CDT)