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Whether the following assumptions that are made by the dividend growth model?
Dividends show either constant growth or zero growthThe correct answer is yes.
However, I thought only the first part of the question was true which is a constant growth rate for dividends. I’m still doubtful about the remaining part which is zero growth since the model does not assume zero growth, does it?Looking forward to your response,
Iniss.According to the dividend growth model, dividends can show either constant growth or zero growth –
In the case of constant growth, the model assumes that shareholders are expecting a constant rate of growth in dividends.
This means that the company is consistently increasing its dividend payout over time.On the other hand, zero growth implies that there is no expectation of growth in dividends. This could be because the company is not growing or because it has chosen to pay out a steady dividend without any increase.
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