The traditional dividend discount model (DDM) states that rising interest rates will
negatively impact stock valuations. The higher the interest rate, the more a stock will be
discounted for total future dividend cash flows, hence lowering the stock's present value.
Given this, investors could draw the simple conclusion that when inflation increases,
interest rates go up so you should sell (or underweight) dividend stocks. For many firms
is not uncommon for investors to expect dividend growth to continue for the foreseeable
future at about the same rate as that of the:
Real GNP (GDP) plus inflation
Real GNP (GDP) minus inflation
Real GNP (GDP) multiply by inflation
Real GNP (GDP) divided by inflation