Dividend Discount Model (DDM) Calculator
Value a dividend-paying stock using the Gordon Growth Model.
Enter the current dividend, required return, and dividend growth rate to estimate intrinsic value.
The Dividend Discount Model values a stock based on the present value of all future dividends it will pay. The Gordon Growth Model is the simplest version: it assumes dividends grow at a constant rate forever.
P = D1 / (r - g)
Where D1 is next year’s dividend (current dividend x (1 + growth rate)), r is your required annual return, and g is the constant dividend growth rate. Both r and g are in decimal form.
If a stock pays a $2.00 annual dividend, you expect dividends to grow at 4% per year, and you require an 8% return:
D1 = $2.00 x 1.04 = $2.08 P = $2.08 / (0.08 - 0.04) = $52.00
If the stock trades below $52.00, it is undervalued by this model. Above $52.00, overvalued.
The critical constraint: r must be greater than g. If growth equals or exceeds the discount rate, the formula produces an infinite or negative result, which signals the model breaks down. This is common for high-growth companies that pay no dividend — the DDM simply does not apply to them.
The model is most useful for stable, mature dividend payers: utilities, consumer staples companies, banks with long dividend histories. It works poorly for growth companies, cyclicals, or any firm where dividends are not the primary return to shareholders.
Required return (r) is usually estimated using CAPM: risk-free rate plus beta times the equity risk premium. The dividend yield at your estimated intrinsic value is D1 / P, which should be lower than r by the growth rate g.
Enter a current market price to instantly see whether the stock is above or below intrinsic value.