Few companies sustain a high dividend growth rate forever — the two-stage model explicitly separates a realistic high-growth period from a more sustainable terminal growth assumption afterward.
How it works
Each of the high-growth years’ dividends is discounted back individually and summed, then a terminal Gordon Growth value is calculated for everything beyond that period and discounted back to today, with both pieces added together.
What this does not include
This does not include a three-stage model, which some analysts prefer for adding a transitional “fading growth” period between the high-growth and terminal stages rather than switching abruptly.
How to use this calculator
- Enter the current dividend, high-growth rate and years, terminal growth rate, and required return.
Frequently asked questions
Why not just use the single-stage Gordon Growth model instead?
The single-stage model assumes one constant growth rate forever, which understates value for a genuinely high-growth company and can produce unrealistic results if that high growth rate is projected out to infinity instead of eventually moderating.
How sensitive is this model to the terminal growth rate?
Very — since the terminal value typically represents the majority of total intrinsic value, small changes in the terminal growth assumption can swing the final valuation substantially.
What happens if the high-growth rate is lower than the terminal rate?
The model still works mathematically, though that’s an unusual real-world assumption — typically the whole point of the “high-growth” stage is that it exceeds the eventual terminal rate.
