To apply the dividend growth model to a particular stock, you need to assume that the firm's Dividend will grow at a constant rate.
The dividend growth rate is the annual rate of growth that a particular stock's dividends experience over a specified period of time. Many mature companies strive to consistently increase the dividends they pay out to investors. Knowing the dividend growth rate is an important input into the stock valuation model known as the dividend discount model.
To use the dividend discount model, we need to calculate the dividend growth rate. The dividend discount model is a type of stock price model. The dividend discount model assumes that expected future dividends (discounted by the excess of internal growth over the company's expected dividend growth rate) determine the price of a particular stock.
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