Foundations of Finance - Class 7 - Equity Variation: BKM Ch.18

2. In what circumstances is it most important to use multistage dividend discount models rather than constant-growth models?

It is most important to use multi-stage dividend discount models when valuing companies with temporarily high growth rates. These companies tend to be companies in the early phases of their life cycles, when they have numerous opportunities for reinvestment, resulting in relatively rapid growth and relatively low dividends (or, in many cases, no dividends at all). As these firms mature, attractive investment opportunities are less numerous so that growth rates slow.