Final answer:
The major limitation of the dividend discount model (DDM) is that it is not applicable to companies that do not pay dividends. DDM requires future dividends to calculate a company's value, which is impossible for non-dividend-paying companies.
Step-by-step explanation:
The major limitation of the dividend discount model (DDM) is that it cannot be used with companies that do not pay dividends. DDM is based on the premise that the value of a company is the present value of all future dividends it will pay to shareholders. Companies that do not pay dividends, therefore, cannot be valued using this model as there are no dividends to discount back to their present value. This makes DDM unsuitable for valuing such companies, and alternative valuation methods must be used instead.