IGNOU MCO 7 2026 - Explain the various dividend valuation models used for the valuation o

Question

Explain the various dividend valuation models used for the valuation of equity share. Compare the assumptions and applicability of Walter's Model and Gordon's Growth Model, and discuss their relevance in real-world valuation decisions.

12 Feb 2026

Answer :

Word Count : 597

Dividend valuation models are based on the fundamental principle that the value of an equity share is equal to the present value of all future dividends expected to be received by the shareholder. These models assume that dividends represent the cash flows available to investors and therefore form the basis for estimating the intrinsic value of a share. The most prominent dividend valuation models include the Dividend Discount Model (DDM), Walter’s Model, and Gordon’s Growth Model. The basic Dividend Discount Model states that the price of a share is the present value of all expected future dividends discounted at the required rate of return. If dividends are expected to grow at different rates over time, a multi-stage DDM can be used, where dividends are forecasted for different growth phases and discounted accordingly. This model is flexible and can accommodate varying growth patterns, but it requires accurate estimation of future dividends and discount rates, which may be difficult in practice. Walter’s Model is an extension of the dividend valuation approach and emphasizes the relationship between dividend policy and firm value. According to Walter, the market price of a share depends on the

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