The Dividend Discount Model with Multiple Growth Rates of Any Order for Stock Evaluation

TL;DR

This paper introduces a generalized dividend discount model that accommodates multiple growth rates over several periods, enhancing stock valuation accuracy for investors and financial institutions.

Contribution

It provides a mathematical proof and a general solution for the dividend discount model with multiple growth stages of any order.

Findings

The model improves stock valuation precision.

A numerical example demonstrates the model's application.

The solution is mathematically validated.

Abstract

In this paper we provide a general solution for the dividend discount model in order to compute the intrinsic value of a common stock that allows for multiple stage growth rates of any predetermined number of periods. A mathematical proof is provided for the suggested general solution. A numerical application is also presented. The solution introduced in this paper is expected to improve on the precision of stock valuation, which might be of fundamental importance for investors as well as financial institutions.