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The dividend discount model (DDM) is the valuation method that takes a stock prices, adds up all future dividend payments, and discounts the present value of the stock based on those future dividend payments. This is essentially the net present value of future dividends (Chen, 2020). This model calculates the fair value without accounting for current market conditions and relies on expected returns and dividend payout considerations (Chen, 2020).

The discounted cash flow model (DCF) values the investment based on future cash flows and uses those cash flows to discount the present value of the stock. This method of valuation is well known as a standard valuation model (Chen & Mansa, 2020).

The estimates utilizing these two models are different because the DDM assumes the values based on dividends while the DCF assumes values based on future cash flows. The DDM model can be flawed if dividends arent constant or consistent over time as they are projected to be. The DDM model is almost useless if the company doesnt pay dividends. The cash flow model can be flawed if the company doesnt have revenue, or if that revenue isnt consistent (Chen, 2020).