Dividend Discount Model Calculator (DDM)
Value a dividend-paying stock using the Gordon Growth Model. Enter the current dividend, the constant growth rate, and your required return to find the fair share price and see projected dividends.
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Gordon Growth Model fair value — the present value of all future dividends
- 1
Next year dividend (D₁)
2 × (1 + 4%) = 2.08 - 2
Discount spread (r − g)
9% − 4% = 5% - 3
Intrinsic value (P₀)
2.08 ÷ 0.05 = 41.60Gordon Growth Model: fair value = D₁ ÷ (r − g).
How does this calculator work?
The Gordon Growth Model values a stock as P₀ = D₁ / (r − g), where D₁ is next year's dividend, r is required return, and g is perpetual growth rate (g must be < r). Enter D₀, g, and r to get the intrinsic price. The model is a useful benchmark but is highly sensitive to small changes in r − g; treat the result as a ballpark fair-value estimate.
Formula
How this is calculated
The Dividend Discount Model (DDM) treats a share of stock as worth the present value of all future dividends it will pay. The Gordon Growth Model — the most common single-stage DDM — assumes dividends grow at a constant rate g indefinitely. Under that assumption the present value of the infinite stream collapses to the simple closed-form formula P₀ = D₁ / (r − g), where D₁ is next year's expected dividend, r is the investor's required rate of return (often estimated from CAPM), and g is the constant perpetual growth rate.
For the model to produce a finite positive price, the growth rate g must be strictly less than r. If g ≥ r the denominator is zero or negative, which implies the stock would be worth an infinite amount — a sign that the constant-growth assumption has broken down, not that the stock is infinitely valuable. In practice, companies mature and growth rates decline, so analysts often layer a multi-stage DDM that uses a high near-term growth rate followed by a lower terminal rate.
This tool also projects dividends year by year over the chosen horizon and shows the present value of those dividends plus the discounted terminal (continuing) value beyond the horizon. Note that the Gordon Growth Model is sensitive to small changes in r − g: because both r and g are forecasts, a fraction of a percentage point difference can move the fair value by 20–30%. Use the result as a sensitivity check, not a precise target price.
Frequently asked questions
The Gordon Growth Model only applies to dividend-paying stocks. For non-dividend payers, analysts typically use a discounted cash flow (DCF) model on free cash flow, or a price-to-earnings multiple approach.
A common method is the Capital Asset Pricing Model (CAPM): r = Risk-free rate + β × Market risk premium, where β measures the stock's volatility relative to the market. Typical values for developed markets range from 6% to 12%.
Because the formula divides by (r − g): when both are close to each other (say r = 9%, g = 7%), the denominator is only 2%, so a 1 percentage-point error in either input doubles or halves the price. Always run the model with a range of r and g values to see the sensitivity.
Also known as
TG we-Calculate Editorial Team. (2026). Dividend Discount Model Calculator (DDM) [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/divdend-discount-model-calculator
TG we-Calculate Editorial Team. "Dividend Discount Model Calculator (DDM)." TG we-Calculate. 2026. https://we-calculate.com/calculator/divdend-discount-model-calculator.
TG we-Calculate Editorial Team, "Dividend Discount Model Calculator (DDM)," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/divdend-discount-model-calculator
@misc{wecalculate_divdend_discount_model_calculator, title = {Dividend Discount Model Calculator (DDM)}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/divdend-discount-model-calculator}}, year = {2026}, note = {TG we-Calculate} }
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