Dividend Discount Model Calculator
The value of a share as the present value of dividends growing at a constant rate forever, the Gordon growth model, and the return implied by a market price.
Result
Value per share: $130.00Estimate
A model value on the return and growth you enter. Small changes to either move it a lot, and real dividends do not grow at one rate forever.
- Next year’s dividend
- $5.20
- Dividend yield at that value
- 4%
https://calcgallery.com/investment-returns/dividend-discount-model-calculator/
Results are arithmetic on the returns, rates and horizons you enter, not a forecast and not investment, tax or retirement advice. The site supplies no expected return, inflation rate, contribution limit, tax rate or withdrawal rate. Real returns vary from year to year, and fees, taxes and the order of returns all change the outcome. Check anything that matters with a qualified adviser. Read the full disclaimer
How to use the Dividend Discount Model Calculator
- Enter the dividend per share for a year, and say whether it is the one just paid or the one expected next year.
- Enter the yearly return you require and the rate you expect dividends to grow at forever.
- Optionally enter the market price to see the return that price implies.
The formula
next dividend D1 = D0 × (1 + g)value per share = D1 ÷ (r − g)implied return = D1 ÷ market price + gD0 is the dividend just paid, g the constant growth rate and r the return you require. With no growth this is a perpetuity, D ÷ r.
Where it fits
The model suits a mature company with a steady dividend policy. For a company growing fast now and slower later, analysts use two stages: dividends year by year for the fast period, then this formula for the rest. This page covers the single-stage form only.
What the diagram shows
The present value of each year’s dividend, added up over thirty years, climbing towards the model value shown as a dashed line. The closer growth is to the required return, the more of the value lies beyond year thirty.
With your numbers
- D1 = $5.00 × (1 + 4%) = $5.20
- Value = $5.20 ÷ (8% − 4%) = $130.00
- Implied return = $5.20 ÷ $100.00 + 4% = 9.2%
Quick reference
A model value on the return and growth you enter. Small changes to either move it a lot, and real dividends do not grow at one rate forever.
| Example | Value per share |
|---|---|
| 5.00 paid, 4% growth, 8% return | $130.00 |
| 5.20 expected next year | $130.00 |
| 2.00, no growth, 6% return | $33.33 |
| 3.00 shrinking 2% a year at 9% | $26.73 |
| 5.00 at a market price of 100 | $130.00 |
| Growth equal to the return |
Common questions about the Dividend Discount Model Calculator
- Why must growth be below the required return?
- The model adds up every future dividend, each discounted at your required return. If dividends grow as fast as the discount, or faster, each year's dividend is worth as much today as the last, and the total never stops growing. The formula would then give a negative or infinite price, so the page leaves the value blank and says why.
- Why does the value change so much with small inputs?
- Because the value divides by the gap between return and growth. At 8% and 4% the gap is 4 points and a 5.20 dividend is worth 130. Raise growth to 5% and the gap is 3 points: the value is about 175. Treat the answer as a range around your assumptions, not a single right price.
- What does the implied return tell me?
- The return you would earn at today's price if the dividend and growth assumptions hold: the dividend yield plus growth. A 5.20 dividend on a 100 price growing at 4% implies 9.2% a year. Compare it with the return you require, knowing both rest on the growth figure you chose.
- Does this work for a company that pays no dividend?
- No. The model values only the dividends, so a company that pays none, or whose dividends will change pattern, needs another method such as discounting its cash flows.