Dividend Discount Models Lecture

These flashcards cover essential vocabulary and definitions related to Dividend Discount Models and their application in investment analysis.

Dividend Discount Models

A group of models used to evaluate the shares of stocks based on the present value of future dividend streams.

Discount Rate

The required rate of return used to calculate the value of shares in dividend discount models.

Zero Growth Model

A model that assumes dividends will continue at a fixed rate indefinitely.

Gordon Growth Model

A model that assumes dividends will grow at a specified rate perpetually into the future.

Present Value

The current worth of future cash flows, discounted back at the discount rate.

Required Rate of Return

The minimum return that investors expect to receive from an investment.

Dividend Yield

A ratio that shows how much a company pays in dividends relative to its stock price.

Utility Company

A type of company commonly associated with consistent dividends but minimal growth.

McDonald's

A fast-food corporation referenced in the lecture as an example of a company that pays dividends.

Illinois Toolworks

An established company mentioned in the lecture that has been around for over 100 years.

Constant Growth Model

An extension of the Gordon Growth Model which estimates dividend growth over a finite period.

Two-Stage Model

A valuation model that assumes dividends grow at two different rates over different time periods.

Volatility

The degree of variation in trading prices over time for a particular security or market index.

Contrarian Play

A strategy where investors choose to invest contrary to the prevailing market trends.

Electronic Dividends

Dividends that are transferred electronically rather than through physical checks.

Sustainable Growth Rate

The rate at which a company can grow its sales, earnings, and dividends while maintaining its current financial structure.

Dividends Don't Lie

A phrase emphasizing that actual dividends paid provide more reliable information than other financial metrics.

Present Value Calculation

The process of determining the current value of a future cash flow by discounting it at a specific rate.

Market Price

The current price at which a stock is trading in the market.

Future Cash Flows

The money expected to be received in the future from an investment.