— Stock Market
Dividend Discount Model Calculator
Value a dividend-paying stock from the present value of future dividends. Use the Gordon Growth model for steady growth or a two-stage model for faster growth now and slower growth later, then compare intrinsic value with market price.
Intrinsic value per share
$42
- Expected dividend (D1)
- $2.10
Try: Gordon: $2 div, 10% r, 5% g, vs a $35 market price, Two-stage: 15% then 4%, A mature, slow grower
— Detail
| Growth rate | Intrinsic value |
|---|---|
| 0% | $20 |
| 3% | $29.43 |
| 5% | $42 |
| 7% | $71.33 |
| 8.5% | $144.67 |
| 9.5% | $438 |
— Value detail
Download— How it works
Gordon Growth: value = D1 ÷ (r − g), where D1 is next year’s dividend, r the required return and g the perpetual growth. Two-stage: the present value of each high-growth dividend plus the discounted terminal (Gordon) value at the end of the high-growth phase.
The Gordon Growth model
In its simplest form, the model assumes dividends grow forever at a steady rate g, and values the stock as next year’s dividend divided by the difference between your required return and that growth: value = D1 ÷ (r − g). The intuition: a bigger dividend or lower required return makes the stock worth more, while faster growth — counter-intuitively — makes it worth a lot more, because it shrinks the denominator. It works best for stable, mature dividend payers whose growth is genuinely steady.
Worked example — a $2 dividend, 10% required return, 5% growth: Next year’s dividend D1 = $2 × 1.05 = $2.10. Value = $2.10 ÷ (10% − 5%) = $42. At a market price of $35, that’s a 20% undervaluation — and the price implies a 11% return.
Two-stage, for fast growers
Few companies grow at one rate forever, so the two-stage model splits the future: a high-growth phase of a few years, then a slower, sustainable terminal rate. It discounts each year’s dividend in the high phase, then adds the discounted “terminal value” — the Gordon value of everything after. That terminal value is usually the bulk of the answer, which is why the terminal growth assumption matters so much. The table shows each year’s dividend and its present value, ending with the terminal value.
The big caveat: sensitivity
The model is notoriously sensitive to its two key inputs. As the growth rate approaches the required return, the denominator (r − g) shrinks toward zero and the value explodes toward infinity — so the model requires g below r, and the calculator flags it when that fails. A change of half a percent in either rate can swing the value enormously, as the sensitivity table makes plain. That’s why a margin of safety matters: value conservatively, demand a discount to your estimate, and treat the output as one input to a decision — not the answer. Not investment advice.
— Reader questions
How does the dividend discount model work?
It values a stock as the present value of all its future dividends. The Gordon Growth version assumes steady growth: value = next year’s dividend ÷ (required return − growth rate). A $2.10 dividend, 10% required return and 5% growth gives $42.
What is the Gordon Growth model?
The single-stage DDM: value = D1 ÷ (r − g), assuming dividends grow at a constant rate g forever. It suits stable, mature dividend payers and breaks down for companies with irregular or very high growth.
When should I use the two-stage model?
When a company is growing faster than it can sustain forever — a high-growth phase for a few years, then a stable terminal rate. It discounts the high-growth dividends explicitly and adds a terminal value for the rest.
Why does the value explode as growth nears the required return?
Because the value is divided by (r − g). As g approaches r, that denominator shrinks toward zero, sending the value toward infinity. The model only works when growth is below the required return — the calculator enforces this.
What is the implied return?
The required return that would make the model’s value equal the current market price. If it’s above your required return, the price offers a good deal; below it, the market is pricing in more optimism than you require.