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Hi michaelo100,

How do I know which companies would be more appropriate for the DCF model versus the dividend model?

There's no hard and fast rules. Theoretically, the Dividend Discount Model (DDM) can be applied to any company whether or not it pays a current dividend or not. However, most prefer to use it for companies at least paying some current dividend. There is a school of thought that counts share buybacks as dividends too. All of this is discussed in Prof. Dam's book, Chapter 13 for the DDM:

Either a free cash flow to equity (FCFE, Chapter 14) or free cash flow to firm (FCFF, Chapter 15) can be applied to nearly any company.

Banks and similar financial service firms pose a unique challenge for DCF analysis (See Chapter 21). The DDM doesn't suffer from this - a dividend is a dividend is a dividend.

Prof. Dam also offers a number of spreadsheets to aid in doing the valuation calculations for all three models. Follow the blue "Spreadsheet" button:

Good luck,

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