Briefly discuss the disadvantages of the constant growth dividend model as a valuation model.

Drawbacks of dividend growth model
– It is only applicable if the cost of equity, Ke is greater than growth rate, in dividends i.e.

If g>ke, then the model would collapse.

– It is based on historical information where “do” is the past dividend per share, and „g‟ is based on historical stream of dividends.
– It assumes a constant stream of dividends in future, growth rate and cost of equity all of which are not achievable in real world.

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