Enter the expected dividends per share, the cost of capital equity, and the dividend growth rate to determine the value of the stock using DDM.

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## DDM Formula

The following formula is used to calculate the value of a stock using DDM.

DDM = EDPS / (CCE – DGR)

- Where DDM is the stock value ($)
- EDPS is the expected dividend per share ($)
- CCE is the cost of capital equity (%)
- DGR is the dividend growth rate (%)

## DDM Definition

**What is DDM? **

DDM, short for dividend discount model, is a model used in financing and investing to present the value of a stock based on the future payout of all dividends when discounted back to their present value.

## Example Problem

How to calculate the stock value using DDM?

**First, determine the expected dividend per share for the current period.**For this example, the dividend per share is expected to be $4.50.

**Next, determine the cost of capital.**In this case, the cost of capital is found to be 8%.

**Next, determine the expected dividend growth rate.**This dividend is expected to grow at 5% per year.

**Finally, calculate the value of the stock using the discount dividend model.**Using the formula above, the stock value is found to be:

DDM = EDPS / (CCE – DGR)

DDM = 4.50 / (.08 – .05)

DDM = $150.00