Asked by MPENDULO DOMINIC FAKUDZE on May 26, 2024
Verified
The dividend growth model only holds if, at some point in time, the dividend growth rate exceeds the stock's required return.
Dividend Growth Model
A method for valuing a stock by using predicted dividends and discounting them back to their present value.
Dividend Growth Rate
The annualized percentage rate of growth of a company's dividend payments, indicating how quickly dividends are increasing over time.
- Comprehend the presuppositions and constraints associated with the constant dividend growth model.
Verified Answer
EN
Emrie NesimiJun 01, 2024
Final Answer :
False
Explanation :
The dividend growth model actually requires the dividend growth rate to be less than the stock's required return for it to be valid, as it is based on the premise that dividends can grow indefinitely only at a rate that is sustainable and less than the required return on the investment.
Learning Objectives
- Comprehend the presuppositions and constraints associated with the constant dividend growth model.