<p>Your 2 examples do not validate a model like the DDM.  Your 2 examples fail to invalidate the DDM.  To validate a model you should use facts and apply them. You should apply DDM to validate it. You need the future dividend expectations to apply DDM and it will be hard to find data. Since the value of both stocks is not zero, you can infer that the market is discounting one or more future dividends, in other words, that dividend payment(s) will be resumed.</p>

CC BY-SA 4.0
2023-09-16T00:24:28.560Z
Well, the question was whether Fannie and Freddie prove the DDM valid, not invalid.

 Freddie and Fannie make billions in profits and have market caps in the millions and even trade *well* below book value or even recovery value. They also have agreements with the US Treasury banning them from paying dividends.
coMPUTER sCIENCE sTUDENT
CC BY-SA 4.0
2023-09-16T08:20:44.793Z
Fail to invalidate is not the same as validate but in hypothesis testing it is a stand in, so that's why I mentioned it. The market is full of divergent opinions. If the stock is not trading for zero dollars it means there are some "divergent" opinions held by people who don't believe the ban on dividends is permanent. Government administrations and congresses are impermanent. That means policy, regulation, and law are impermanent. There was a special dividend paid after regular dividends were first suspended. I don't know which class of shares it was paid for.
H2ONaCl
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2023-09-15T12:38:18.380Z
2023-09-15T12:38:18.380Z
H2ONaCl
<p>The Discount Dividend Model posits that the value of equities is equal to the discounted value of future dividend payments of a firm; for a firm that doesn't pay a dividend, you presume that they are able to pay dividends sometime in the future in order to solve the puzzle of shares that have never paid a dividend still having value (ex. Amazon, Regeneron Pharmaceutical, Google).</p>
<p>However, Freddie Mac and Fannie Mae are banned from paying dividends for the foreseeable future and their shares are near worthless. It wouldn't be from minority shareholder representation since many firms where common shares have near minority status - like Google - trade with value. Does this observed market behavior validate the DDM?</p>

<microeconomics><finance><asset-pricing>
Does the near-zero value of Fannie and Freddie shares indicate the validity of the Discount Dividend Model?
coMPUTER sCIENCE sTUDENT
# Does the near-zero value of Fannie and Freddie shares indicate the validity of the Discount Dividend Model?

(Asked by: username_0 on 2023-09-11)

The Discount Dividend Model posits that the value of equities is equal to the discounted value of future dividend payments of a firm; for a firm that doesn't pay a dividend, you presume that they are able to pay dividends sometime in the future in order to solve the puzzle of shares that have never paid a dividend still having value (ex. Amazon, Regeneron Pharmaceutical, Google).

However, Freddie Mac and Fannie Mae are banned from paying dividends for the foreseeable future and their shares are near worthless. It wouldn't be from minority shareholder representation since many firms where common shares have near minority status - like Google - trade with value. Does this observed market behavior validate the DDM?

**Tags:** microeconomics, finance, asset-pricing


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## 1 answers

### Answer by username_1 on 2023-09-15. Score: 0

Your 2 examples do not validate a model like the DDM. Your 2 examples fail to invalidate the DDM. To validate a model you should use facts and apply them. You should apply DDM to validate it. You need the future dividend expectations to apply DDM and it will be hard to find data. Since the value of both stocks is not zero, you can infer that the market is discounting one or more future dividends, in other words, that dividend payment(s) will be resumed.

> **Comments:**
> **username_0**: Well, the question was whether Fannie and Freddie prove the DDM valid, not invalid.   Freddie and Fannie make billions in profits and have market caps in the millions and even trade *well* below book value or even recovery value. They also have agreements with the US Treasury banning them from paying dividends.  
> **username_1**: Fail to invalidate is not the same as validate but in hypothesis testing it is a stand in, so that's why I mentioned it. The market is full of divergent opinions. If the stock is not trading for zero dollars it means there are some "divergent" opinions held by people who don't believe the ban on dividends is permanent. Government administrations and congresses are impermanent. That means policy, regulation, and law are impermanent. There was a special dividend paid after regular dividends were first suspended. I don't know which class of shares it was paid for.  

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