Dividend Discount Model (DDM) Calculator - 1- & 2-Stage
Run the dividend discount model in seconds - classic Gordon growth or two-stage with a growth phase: a share value from future dividends, free with formula and example.
Also available in German: Dividend-Discount-Model Rechner (DDM) - ein- & zweistufig →
Inputs
Dividend per share
Also called: DPS, payout per share
Where to find it: Investor-relations page or the dividend history on finance portals (trailing 12 months).
How to derive: Total dividends paid ÷ shares outstanding.
Growth rate
Also called: Growth per year
Where to find it: Analyst estimates or the company’s historical earnings/revenue growth.
How to derive: (value now ÷ value n years ago)^(1/n) − 1. Estimate conservatively!
Discount / required rate
Also called: Required return, hurdle rate
Where to find it: Your own required return — or via CAPM (discount-rate calculator).
How to derive: Risk-free rate + beta × market premium. Equities typically 7–10%.
Terminal growth
Also called: Perpetual growth rate
Where to find it: An assumption — not in the filings.
How to derive: Long-run growth after the forecast phase. Cap near GDP growth (2–3%).
Share price
Also called: Stock price, market price
Where to find it: Any finance site (Google/Yahoo Finance) — the current trading price per share.
How to derive: Set by the market; just enter the current price per share.
Result, live
Only meaningful for stable dividend payers (utilities, telecom, staples). Extremely sensitive to the r − g spread. Tip: for dividend growers, model 5–10 growth years first, then 2–3% terminal growth.
The dividend discount model values a stock purely from its future dividends. You enter the current dividend, its expected growth and your required return, and the calculator returns a fair price. Best suited to steady dividend payers such as utilities or staples.
How the formula works
The Gordon growth model assumes the dividend grows forever at a constant rate g, and discounts that infinite stream at your required return r.
Example: $3 dividend, 4% growth, 8% required return: next dividend D₁ = $3 × 1.04 = $3.12. Fair value = $3.12 / (0.08 − 0.04) = $78.
Two-stage example: $3 dividend, 8% growth for 5 years, then 3% forever, 8% required return: discount the 5 growth dividends ($15.00), then discount the terminal value $4.41 × 1.03 / (0.08 − 0.03) = $90.83 back to today (≈ $61.80). Fair value ≈ $77 — the calculator above does exactly this in one click.
How to read the result
- Upside above +10%: price below the DDM value — cheap per the model.
- −10% to +10%: fairly priced.
- Upside below −10%: pricier than the dividends justify.
What to watch out for
- r must exceed g: if growth sits close to the required return, the value blows up — and becomes meaningless.
- Steady payers only: firms with no dividend or an erratic one cannot be valued this way.
- Buybacks are ignored: a company returning a lot via share buybacks is understated by a pure dividend model.
Frequently asked questions
What required return (r) makes sense?
Often 7–10%: a risk-free base rate plus a risk premium. The safer the payer, the lower you can go.
What if r is smaller than g?
Then the formula is undefined and the denominator turns negative. Perpetual growth above your required return is economically impossible — lower g.
Where do I get the dividend and its growth?
From the payout history of recent years. In our Fair Value Calculator they are already on file for 35,000+ stocks — no typing required.