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Glossary · PSX term

Dividend discount model.

The dividend discount model values a stock as the present value of its expected future dividends.

Definition

It estimates fair value by discounting projected dividends back to today, making it most useful for stable, dividend-paying companies. Its output is sensitive to the assumed growth and discount rates.

Worked example

Valuing a steady dividend payer like a utility by discounting its expected future payouts uses this model.

Related on PSX Clarity

Term
Dividend yield
Term
Payout ratio
Term
Discount rate
Term
Intrinsic value

More glossary terms

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Dividend yield
Dividend yield shows annual dividend income as a percentage of the current share price. It helps PSX investors compare income from different stocks, but it should be reviewed with payout history, earnings quality, and whether the dividend is sustainable.
Debt-to-equity ratio
Debt-to-equity ratio compares a company's borrowings with shareholder equity. It helps investors understand leverage and balance-sheet risk.
Delisting
Delisting is the removal of a company's shares from trading on the exchange.
Dilution
Dilution is the drop in each existing share's ownership when a company issues new shares.
Day trading
Day trading is buying and selling the same stock within a single trading session.
Deliverable futures
Deliverable futures are PSX contracts where actual shares are delivered when the contract expires.
Disclosure
Disclosure is a company's duty to publicly share information that could affect its share price.
Discounted cash flow (DCF)
DCF values a company by estimating its future cash flows and discounting them to today's value.
Discount rate
The discount rate converts future cash into today's value, reflecting time and risk.