Dividend Discount Model Calculator
Estimate a stock’s intrinsic value with the Gordon Growth dividend discount model from the next dividend, required return and growth rate.
How it works
Intrinsic value = D₁ ÷ (r − g), where D₁ = next dividend, r = required return, g = dividend growth (r > g)
The Gordon Growth dividend discount model values a share as the present value of an infinite stream of dividends growing at a constant rate. It assumes the company pays a dividend, grows it steadily forever, and that your required return exceeds that growth rate — without which the formula breaks down. The output is highly sensitive to the inputs: nudging the growth rate a point closer to the required return can send the valuation soaring, so treat it as a framework, not a precise price.
Worked example
Expecting a $2 dividend next year, requiring an 8% return and assuming 4% perpetual dividend growth, the intrinsic value is 2 ÷ (0.08 − 0.04) = 2 ÷ 0.04 = $50 per share.
Frequently asked questions
When does the dividend discount model work best?
For mature, stable companies that pay steady, predictably growing dividends — think established utilities and consumer staples. It fails for firms that pay no dividend or grow erratically.
Why must the required return exceed growth?
If growth met or beat the required return, the dividend stream’s present value would be infinite or negative, which is nonsensical. The r > g condition keeps the geometric series finite.
Why is the model so sensitive?
The denominator is the small gap between two large-ish percentages. A tiny change in either the growth or required return sharply changes that gap and swings the valuation, so use conservative, well-reasoned inputs.
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Educational estimate, not investment advice. Ratios and valuation models are simplifications; verify figures against official filings and consult a licensed advisor before investing.