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Dividend valuation

Dividend Discount Calculator

The Gordon Growth dividend discount model values a stable dividend stream that is expected to grow at a constant rate indefinitely. It is most useful for mature, predictable dividend payers.

Interactive calculator

Dividend Discount Calculator

Enter your assumptions and select Calculate. Values stay in your browser.

Formula behind the calculator

Value per share = D₁ / (r − g), where D₁ = D₀ × (1 + g)

Next year's expected dividend is divided by the spread between the required return and perpetual dividend growth. The required return must exceed growth.

How to use it

  1. 1Use the current annualized dividend and verify that it is covered by sustainable earnings and cash flow.
  2. 2Choose a conservative perpetual growth rate consistent with long-run economic constraints.
  3. 3Set a required equity return above the growth rate.
  4. 4Test several growth and required-return combinations because the model is highly sensitive to their spread.

Interpret the result

  • The result is an estimate under a constant-growth assumption, not a prediction of the future market price.
  • When required return and growth are close, valuation becomes extremely sensitive. That is a warning to widen the scenario range.
  • Do not use this single-stage model for companies with no dividend, unstable payouts or a near-term growth phase unlike their mature state.

Go deeper

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Frequently asked questions

What dividend should I enter?

Use the current annualized regular dividend per share. Exclude special dividends unless they are genuinely recurring.

Why must required return exceed growth?

Otherwise the denominator is zero or negative and a stable finite Gordon Growth value cannot be calculated.

Can DDM value a company that does not pay dividends?

Not meaningfully. A DCF or another method based on cash generation is more appropriate.

How should I choose dividend growth?

Review payout capacity, earnings growth, return on reinvested capital and long-run economic growth. Use a conservative perpetual rate.

Does a high dividend yield mean the stock is undervalued?

No. A high yield can reflect an expected dividend cut, financial stress or weak growth.