How does a Dividend Discount Model (DDM) primarily assess a company's value?

The Dividend Discount Model (DDM) is fundamentally designed to value a company based on the expectation of future dividends that it will generate for its shareholders. The model operates on the premise that the intrinsic value of a stock is equal to the present value of all future dividends, which are anticipated to be paid out to shareholders over time.

The DDM calculates these future dividends and discounts them back to their present value using a required rate of return. This approach directly reflects the cash flows that shareholders expect to receive, as dividends are a key component of the total return investors anticipate from holding a stock.

By focusing on dividends, the DDM is particularly useful for valuing mature companies that have a reliable history of paying and increasing dividends, making it a straightforward tool for investors looking to estimate the value of such firms based on their dividend policies. Hence, the correct answer highlights the model's primary mechanism for assessing a company’s value through its future payouts to shareholders.