Dividend Discount Model Calculator
The dividend discount model estimates a stock's intrinsic value as the present value of its future dividends. The widely used Gordon Growth version assumes dividends grow at a constant rate forever, giving a clean formula: price equals next year's dividend divided by the required return minus the growth rate. Enter your assumptions below to get an estimated fair value per share. The model is highly sensitive to the inputs you choose, so treat the result as one estimate among several, not a precise figure.
Gordon Growth formula
Value per share = D1 / (r - g)
where D1 = next year's dividend, r = required return, g = growth rate
valid only when r > g
Both r and g are entered as percentages and converted to decimals. If r is not greater than g, the model has no finite, positive solution and the calculator reports that the formula does not apply.
Worked example
D1 = $2.00, required return 8 percent, growth 3 percent:
- r - g = 0.08 - 0.03 = 0.05 (5.00 percent).
- Value = 2.00 / 0.05 = $40.00 per share.
Dividend discount model: frequently asked questions
What is the dividend discount model?
The dividend discount model (DDM) values a stock as the present value of all its future dividends. The most common form, the Gordon Growth Model, assumes dividends grow at a constant rate forever. The value equals next year's expected dividend divided by the required rate of return minus the growth rate: P = D1 / (r - g).
Why must the required return be greater than the growth rate?
The Gordon Growth Model only converges to a finite value when the required return r is greater than the perpetual growth rate g. If g is equal to or greater than r, the formula gives an undefined or negative result and the model does not apply. In that case a multi-stage model is needed instead.
Is D1 this year's or next year's dividend?
D1 is next year's expected dividend, the dividend one period from now. If you only have the current dividend D0, you can grow it by the growth rate: D1 = D0 times (1 + g). This calculator lets you enter D1 directly so you control the assumption.
What are the model's limitations?
It assumes a single constant growth rate forever and only works for dividend-paying companies. Results are highly sensitive to small changes in r and g, especially when they are close together. It is a starting estimate, not a precise valuation, and should be combined with other methods and judgement.
Official sources
- U.S. Securities and Exchange Commission, Investor.gov: Dividend.
- U.S. Securities and Exchange Commission, Investor.gov: Stocks.
Reviewed by the CalculatorHub team, edited by James Graham, 19 June 2026. See our methodology.