Applies the same Gordon Growth math this site’s terminal value calculator uses for a whole business, but to a single stock’s per-share dividend stream instead.
How it works
The current dividend, grown one year at the expected growth rate, is divided by the gap between the required rate of return and that growth rate — giving the intrinsic share price implied by the dividend stream alone.
What this does not include
This single-stage model assumes one constant growth rate forever — a more advanced multi-stage DDM would model different growth rates across distinct future periods, which this simplified version doesn’t attempt.
How to use this calculator
- Enter the current annual dividend, expected growth rate, and required rate of return.
A worked example
A current dividend of $2.00, growing 4% annually, with a 9% required return: next dividend = $2.08, intrinsic price = $41.60.
What the variables mean
| Variable | Meaning |
|---|---|
| Current dividend | The most recent annual dividend paid |
| Growth rate | Expected annual dividend growth rate |
| Required return | The investor’s required rate of return |
Edge cases worth knowing
The growth rate must stay below the required return for this model to work. When growth equals or exceeds the required return, the formula’s denominator hits zero or goes negative, producing a nonsensical (infinite or negative) price — which is why the calculator declines to show a result when growth rate meets required return.
This model assumes constant perpetual growth — a simplification that works best for stable, mature dividend payers, not companies with volatile or uncertain dividend growth.
Frequently asked questions
What kind of stocks is DDM best suited for?
Mature, stable dividend-paying companies with a consistent and predictable dividend growth history — it’s poorly suited to non-dividend-paying or highly volatile growth stocks.
Why does required return need to exceed growth rate?
Same reason as the terminal value calculator’s perpetuity formula — the math becomes undefined or negative if growth equals or exceeds the discount rate.
How does DDM compare to a P/E-based valuation?
DDM values a stock based purely on its expected cash returns to shareholders (dividends); P/E instead benchmarks against what the market is currently paying for similar earnings — different philosophies that can produce different estimates.
