The limitations of the dividend discount model are more pronounced when valuing stocks
A)that pay most of their earnings as dividends.
B)that retain most of their earnings.
C)that have a long history of dividends.
D)that have constant earnings growth

Question

Quizplus · Accepted Answer

The dividend discount model (DDM) is less effective for companies that retain most of their earnings rather than paying them out as dividends. This is because the DDM focuses on dividends to value a stock, and companies that reinvest their earnings instead of distributing them may not be accurately valued by this model.

The Limitations of the Dividend Discount Model Are More Pronounced