The dividend discount model (DDM) is a equation formulated to find out the present values of company's stock price by summation of its future dividend payments by discounting back to their present value. In simple words, the model find outs the present value of the dividend that will be received in future.

Discounting or Present Value refers to finding time value of Rs. 100 which you will receive after a year, but the DDM model includes the growth rate to this Rs.100 and cost incurred to get this Rs. 100. So DDM considers dividend expected to receive every year, along with the rate at which the dividend will grow every year and cost acquired for the dividend to find the company's stock price. This is mathematically represented as:

In simple words, DDM uses net present value of the future dividends to value the stocks . The equation is widely known as the Gordon growth model (GGM) as it is named after Myron J. Gordon.