Estimate a stock's fair value from future dividend streams: single-stage Gordon model, two-stage (multi-stage) DDM, implied growth solver from market price, and a sensitivity table.
Anchor example: D₁ = $2, r = 10%, g = 4% → P₀ = 2 / 0.06 = $33.33.
High growth for N years, then stable growth forever. The terminal value is computed with the Gordon formula on the year N+1 dividend. Example: D₀ = $1, high growth 12% for 5 years, then stable 4%, r = 10% → P₀ = $24.25.
Inverting the Gordon formula: what growth is "implied" in today's market price? Anchor example: market price $33.33, D₁ = $2, r = 10% → implied g = 10% − 2/33.33 = 4%.
See how sensitive the Gordon valuation is to your assumptions. Cells marked "—" mean an invalid combination (r ≤ g, model does not apply). With D₁ = $2: r = 12%, g = 4% → $25.00; r = 10%, g = 6% → $50.00.
| Pattern | Meaning |
|---|---|
| P₀ jumps as g approaches r | The model is very sensitive near the validity boundary; small changes in the g assumption change the valuation drastically. |
| P₀ falls as r rises | A higher discount rate lowers the present value of all future dividends. |
| Cells marked "—" | r ≤ g combinations are invalid for Gordon — the formula gives a meaningless result. |
| Small row differences at low g | At low growth, the valuation is relatively stable against assumption changes. |
Gordon model (single stage): P₀ = D₁ / (r − g), where D₁ is next year’s dividend, r the discount rate (required return), g the annual dividend growth forever. Absolute requirement: r > g — if r ≤ g, the infinite dividend series does not converge and the model is invalid.
Two-stage DDM: P₀ = Σ D₀(1+g₁)ᵗ/(1+r)ᵗ + [D_{N+1}/(r−g₂)]/(1+r)ᴺ — present value of the high-growth-stage dividends plus the present value of the stable-stage Gordon terminal value.
Solver: from P₀ = D₁/(r−g) we get g = r − D₁/P₀ (implied growth) and r = D₁/P₀ + g (implied return).
The Dividend Discount Model is a stock valuation method that computes fair value as the present value of all future discounted dividends. Example: a $1.50 next-year dividend at an 8% discount and 3% growth gives a value of $30.00 under the Gordon model.
The formula is P₀ = D₁ / (r − g). D₁ is next year’s dividend, r the discount rate, and g the annual dividend growth forever. Anchor example: D₁ = $2, r = 10%, g = 4% gives P₀ = $33.33.
DDM works best for established companies that pay stable, moderately growing dividends, such as utilities or large banks. It is less suitable for companies that pay no dividends or whose growth is very unstable.
Because DDM sums dividends to infinity. If growth g equals or exceeds the discount rate r, the series does not converge and the formula produces a meaningless number. This calculator rejects r ≤ g combinations as invalid.
Implied growth is the dividend growth rate implied by the current market price, computed by inverting the Gordon formula: g = r − D₁/P₀. Example: a price of $33.33 with D₁ = $2 and r = 10% implies 4% growth.
DDM is a special case of DCF (Discounted Cash Flow): DDM discounts the dividends received by shareholders, while general DCF discounts the company’s free cash flows. DDM is simpler but only applies to dividend-paying issuers; DCF is more flexible but needs more assumptions.
DDM is very sensitive to growth and discount assumptions — small changes can change the valuation drastically. The model also ignores share buybacks and assumes constant growth forever, so results are best viewed as one perspective, not a precise figure.
No. This calculator is an educational tool for understanding how dividend valuation models work. The results are not recommendations to buy, sell, or hold any stock.
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