Dividend Discount Model Calculator

Calculate intrinsic stock value using the Dividend Discount Model (DDM). Includes Gordon Growth constant-dividend model, two-stage DDM, three-stage DDM, implied growth rate solver, and sustainable growth rate (ROE × retention ratio).

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Intrinsic Value (Gordon Growth)
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Dividend Yield at Intrinsic Value —
Capital Gain Yield —
Model Validity —
Extended More scenarios, charts & detailed breakdown ▾
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Two-Stage Intrinsic Value
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PV of High-Growth Dividends —
PV of Stable Growth Terminal Value —
Professional Full parameters & maximum detail ▾
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Three-Stage Valuation

Three-Stage DDM Value —

Phase Breakdown

PV Phase 1 (High Growth) —
PV Phase 2 (Transition) —
PV Phase 3 (Stable Terminal) —

Fundamental Check

Sustainable Growth Rate (g = ROE × b) —

How to Use This Calculator

  1. Enter Next Year's Dividend D₁, Required Return r (use CAPM), and Dividend Growth Rate g.
  2. Make sure r > g — otherwise the model is undefined.
  3. The calculator returns intrinsic value, dividend yield, and capital gain yield.
  4. Use Two-Stage DDM tab for companies transitioning from high growth to stable growth.
  5. Use Implied Growth Rate tab to find what growth rate is priced into the current stock price.
  6. Open Professional for three-stage DDM and sustainable growth rate analysis.

Formula

Gordon Growth: P = D₁ / (r − g)

Sustainable Growth: g = ROE × (1 − Payout Ratio)

Example

Example: D₁ = $2.50, r = 9%, g = 4%. Intrinsic value = 2.50 / (0.09 − 0.04) = $50.00. Dividend yield = 2.50/50 = 5%. Capital gain yield = 4%. Total return = 9% = required return. If market price is $45, stock may be undervalued.

Frequently Asked Questions

  • The Gordon Growth Model (constant-growth DDM) values a stock as: P = D₁ / (r − g). Where D₁ is next year's dividend, r is required return, and g is perpetual dividend growth rate. Example: D₁ = $2.50, r = 9%, g = 4% → Value = 2.50 / (0.09 − 0.04) = $50.
  • DDM works best for stable, dividend-paying companies: blue-chip stocks, utilities, REITs, consumer staples. It fails for growth companies that pay no dividends (Tesla, Amazon historically), cyclical companies with irregular dividends, or when g ≥ r (model produces negative/infinite values).
  • The two-stage DDM assumes a high-growth period (e.g., 10–15% for 5 years) followed by stable perpetual growth (3–4%). Calculate PV of dividends in Phase 1 + PV of terminal value at start of Phase 2. Better for companies transitioning from high growth to maturity.
  • Sustainable growth rate g = ROE × Retention Ratio (= ROE × (1 − Payout Ratio)). This links DDM to fundamentals. If ROE = 15% and payout = 40%, then b = 60%, sustainable g = 15% × 60% = 9%. Long-term growth cannot sustainably exceed ROE × retention.
  • Rearranging Gordon Growth: g = r − D₁/P. Given the current market price, you can solve for what growth rate the market implies. If the implied g is higher than you believe is sustainable, the stock may be overvalued.

Related Calculators

💵 DCF Calculator 💰 Dividend Calculator 📊 P/E Ratio Calculator 📈 CAPM Calculator
Sources & References (5) ▾
  1. Dividends, Earnings and Stock Prices — Myron Gordon (1959) — Review of Economics and Statistics
  2. Damodaran — Dividend Discount Models — NYU Stern
  3. CFA Institute — Dividend Discount Models — CFA Institute
  4. Dividend Discount Model — Investopedia — Investopedia
  5. Principles of Corporate Finance — Brealey, Myers & Allen — McGraw-Hill