Question

Which of the following must be true under the one-stage dividend discount model? I. The dividend growth rate continues indefinitely. II. Dividends grow at a constant rate. III. "Dividends" means all cash distributions to shareholders--both cash dividends and buybacks of particular shareholders. IV. The dividend growth rate is greater than the required rate of return.

Answer 1

One stage dividend discount model means a dividend which is growing at a constant rate.

Option 1 is incorrect because : growth neednt continue indefinitely

option 3 is incorrect because cash dividends and buybacks are different and not similar. Buybacks doesnt mean dividend

Option 4 is incorrect because  Dividend growth rate has to be less than required rate of return