Dividend Valuation Model

The Dividend Valuation Model (DVM) is indeed based solely on dividends and does not take into account market conditions, which can limit its accuracy. However, it is still used for several reasons:
It provides a theoretical basis for understanding how dividends impact the market value of shares. It helps explain why shares are valued the way they are, even if it doesn’t perfectly predict market prices.
It simplifies the valuation process by focusing on dividends, which are a tangible return to shareholders. This can be useful for educational purposes and for providing a basic understanding of share valuation.
Benchmarking: While it may not be perfectly accurate, DVM can serve as a benchmark or starting point for valuation. It can be used in conjunction with other models and methods to provide a more comprehensive valuation.
It can be useful in analysing a company’s dividend policy and its impact on shareholder value. It helps in understanding the relationship between dividend payments and share prices.
Despite its limitations, it is still one of several tools that accountants and financial analysts use to assess the value of a company, and it should be used with an understanding of its limitations and in conjunction with other valuation methods.