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Answer:
Despite being a theoretically model, DDM is not used
because,
- The DDM model is full of too many assumptions. There are
assumptions regarding growth rate, interest rates and tax rates
which are not practically viable in real world. Most of these
conditions are not in the control of the investors. These
assumptions reduces the validity of DDM
- Another major drawback is the fact that DDM implicitly assumes
that the dividends paid out are directly in relations to earnings
of the organization. This means that higher earnings from the
company will translate into higher dividends and vice versa. But,
in reality, this never happens. Companies have strived to maintain
stable dividend payouts, even if they are facing extreme variations
in their earnings