DDIS — Dividend Discount Model

DDIS computes a per-share fair value via the two-stage Dividend Discount Model and compares it to the current price as a margin-of-safety percentage. It's the panel to open when you want to know whether a dividend-paying stock is fairly valued, and how sensitive that fair value is to your growth assumption.

For non-dividend payers (yield < 0.1% or zero annual dividend), the panel honestly reports "DDM not applicable" instead of producing a meaningless number. DDM is structurally inapplicable when D = 0 — any plug for terminal value dominates the result. The empty state points you to FCF DCF or relative valuation as the right tool for that case.

• Palette: add ddis or add ddm.
• Symbol+function: AAPL DDIS, MSFT DDIS, KO DDM.

PV = Σ(t=1..N) D₀(1+g_hi)^t / (1+r)^t + [D_N(1+g_term) / (r − g_term)] / (1+r)^N

• Stage 1 — sum of the next N years of dividends, each grown at g_hi, each discounted at r. The high-growth phase.
• Stage 2 — terminal value at year N (Gordon Growth Model with g_term as the perpetuity growth rate), then discounted back N years.
• Both stages are summed to give the per-share fair value.

• D₀ — current annual dividend per share (from Fundamentals).
• r (Re) — cost of equity via CAPM: Rf + β × ERP. Same formula as WACC's cost-of-equity input. Sourced from the 10Y Treasury and the stock's beta.
• g_hi — high-growth-phase dividend growth, proxied by EPS growth rate clamped to [0%, 20%]. The clamp prevents nonsense — a stock growing EPS at +60% won't grow dividends at +60% sustainably.
• g_term — terminal growth, fixed at 3% (US long-run nominal GDP). This is the standard textbook assumption.
• N — high-growth phase length, fixed at 5 years (standard analyst convention).

The panel classifies the gap between fair value and current price into five regimes:

• UNDERVALUED (> +30%) — fair value materially above price; if the model assumptions hold, this is a margin of safety strong enough to size up.
• ATTRACTIVE (+10% to +30%) — fair value above price, but the margin is modest. Your model has to be more right than wrong for the trade to work.
• FAIR (−10% to +10%) — fair value within ±10% of price. Market and DDM agree.
• STRETCHED (−10% to −30%) — price above fair value. Either the growth assumption is too conservative or the price is reaching.
• OVERVALUED (< −30%) — price materially above DDM fair value. The market is pricing growth that DDM doesn't see, or you're using DDM on a stock where it doesn't fit.

A "STRETCHED" or "OVERVALUED" reading on a high-growth name may be the model's limitation, not the price's. Always pair DDIS with the sensitivity strip below.

The differentiator: three columns showing fair value at g_hi −2pp, current g_hi, and g_hi +2pp. If the fair-value range across that 4-percentage-point band is tight (within ±10% of the central estimate), your DDM is robust. If the range is wide (varies by 50%+), the result is dominated by the growth assumption and you'd want to triangulate with another method.

Two-stage DDM is most sensitive to g_term — but the panel holds g_term fixed at 3% because varying it produces explosive sensitivity (small changes near r produce huge fair-value swings near the singularity). g_hi is the input where analyst judgment lives, so g_hi is the input you can perturb.

Reach for DDIS on stable mid-to-large cap dividend payers — the names where DDM earns its keep. Coca-Cola, Johnson & Johnson, Procter & Gamble, AT&T, consumer staples, regulated utilities, mature industrials. The model assumes dividends grow predictably; for those names, that's often a defensible assumption.

Don't use DDIS on growth-tech (no dividends or trivial yield), distressed credits (dividend cut risk dominates), or cyclicals (dividend volatility violates the constant-growth assumption). The panel will compute a number for any input, but the number is only as good as the assumptions hold up.

• WACC — shares the cost-of-equity computation. WACC is the discount rate; DDIS is one valuation framework that uses it.
• DES — orient on a name before reaching for any valuation framework.
• FA — source of dividend, EPS growth, beta inputs.
• GF — 8-quarter EPS / FCF / margin trends. Use to sanity-check whether the EPS growth being plugged into g_hi is real or noise.