What are some of the drawbacks using Dividend Growth Model, or any other dividend based pricing model?

The Dividend Growth Model (DGM) is a popular method for valuing stocks that takes into account both current dividend payments as well as future growth in dividends over time. While this model has its advantages, it also comes with certain drawbacks which need to be considered before utilizing it.

For instance, the DGM assumes that companies’ dividend payments will continue growing at a steady rate over time. This may not necessarily be true in reality and any sudden changes could lead to inaccurate results. Additionally the model does not factor in any other potential returns such as capital gains or stock splits which renders estimates less reliable when compared to more comprehensive models.

All in all, while the DGM is an effective tool for analyzing stocks with consistent dividends; it is important to keep these limitations in mind when using any type of dividend-based pricing model. By doing so investors can ensure they are making informed decisions that take into account all relevant factors before investing their hard earned money.