Question

The value of any stock estimated by the dividend growth model depends on both the dividend...

The value of any stock estimated by the dividend growth model depends on both the dividend stream and any expected capital gains.

True
False
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Answer #1

The answer is False

The Dividend growth model is also known as Dividend Discount Model (DDM).

According to this model the Value of Stock would be equal to the Present value of all future dividends discounted at the required rate of return.

Hence there are two inputs required for valuation under Dividend Discount Model

  1. Forecast of Future Dividend
  2. Determination of required rate of return (Re)

Expected Capital gains would have no impact while determining the value of stock under Dividend Discount Model. Value of the stock only depends on the dividend stream under Dividend Discount Model.

Therefore the statement given in the question is False

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