Dividend Discount Model Calculator

Value dividend-paying stocks using the Gordon Growth Model or Two-Stage DDM approach

Enter as percentage (e.g., 10 for 10%)

Expected perpetual dividend growth rate

Understanding the Dividend Discount Model

Gordon Growth Model (Constant Growth DDM)

The Gordon Growth Model assumes that dividends will grow at a constant rate forever. It's ideal for mature, stable companies with predictable dividend growth.

Stock Value = D₁ / (r - g)

Where D₁ = Next year's dividend, r = Required return, g = Growth rate

Two-Stage DDM

The Two-Stage model is more realistic for companies expected to have high growth initially, followed by stable growth. It's commonly used for growing companies that will eventually mature.

Stage 1: Calculate present value of dividends during high growth period
Stage 2: Calculate terminal value using Gordon Growth Model, then discount to present

Important Considerations

  • The growth rate must be less than the discount rate for the model to work
  • DDM is most appropriate for dividend-paying stocks with stable, predictable dividends
  • The model assumes dividends are the only source of shareholder returns
  • Required return (discount rate) should reflect the risk of the investment
  • Growth rates should be realistic and sustainable long-term