Which of the following models assumes a constant growth rate of dividends?

The constant perpetual growth model is designed to value a stock based on the assumption that dividends will grow at a constant rate indefinitely. This model is particularly useful for companies with a stable and predictable dividend growth pattern, allowing investors to estimate the present value of future dividend payments.

Using the formula ( P = \frac{D_0(1+g)}{r - g} ), where ( P ) is the price of the stock, ( D_0 ) is the most recent dividend payment, ( g ) is the growth rate of the dividend, and ( r ) is the required rate of return, this model shows how dividends growing at a constant rate can be translated into the value of the stock.

In contrast, while the free cash flow model and the discounted cash flow model do consider future cash flows and their present values, they do not specifically assume a constant growth rate of dividends. The free cash flow model focuses more on cash flows generated by the business rather than strictly on dividends. The discounted cash flow model, similarly, can assume different growth rates but does not limit itself to a constant growth assumption.

The valuation multiple model utilizes ratios like price-to-earnings or price-to-sales and does not directly incorporate dividend