What formula does the Constant-Growth (Gordon) model use?

Intrinsic value is computed as P0 = D1 / (r − g). If you provide last dividend D0, the tool first computes next dividend D1 = D0 × (1 + g). The condition r > g must hold for the model to be valid. These relations follow from the Gordon–Shapiro dividend growth framework.

What’s the difference between entering D0 (last dividend) and D1 (next dividend)?

If you enter D0, the calculator grows it by the long-term rate g to get D1 (D1 = D0 × (1 + g)). If you enter D1 directly, that growth step is skipped and P0 = D1 / (r − g) is applied.

How does the Zero-Growth model work?

It assumes a level perpetuity of dividends, so price is P0 = D / r, where D is the constant dividend per period and r is the required return. This is the perpetuity special case of the Gordon–Shapiro setup when g = 0.

How is the Two-Stage Dividend Discount Model calculated?

The calculator sums the present value of each explicitly forecast dividend during the high-growth stage and adds a terminal value at the switch date computed with the constant-growth formula: TV = D_{n+1} / (r − g_stable). Total value = PV(stage dividends) + PV(TV). This is the standard “finite explicit + perpetual continuation” construction used in dividend valuation.

How are rates, currency, and rounding handled?

r and g are annual rates entered in percent (internally treated as decimals). Currency display follows ISO 4217 conventions for codes/decimal places; monetary outputs round to the selected display precision using round-half-to-even (banker’s rounding) per NIST SP 811.

Dividend Discount Calculator - DDM & Gordon Growth

Dividend Discount Calculator

Estimate the intrinsic value of a stock using the Dividend Discount Model (DDM): Zero-growth, Constant-growth (Gordon), or Two-stage growth.

Model

Perpetual constant growth: P = D1 / (r - g). r must exceed g.

Dividend Input

Last Dividend (D0)

Next Dividend (D1)

Required Return (r)

Long-term Growth (g)

Initial Growth (g1)

Years of High Growth (N)

Terminal Growth (g2)

Results

Intrinsic Value $
PV of Stage Dividends $
PV of Terminal Value $
Model Used

Dividend Discount Model (DDM) values a stock as the present value of future dividends. Pick the variant that matches how dividends grow: zero, constant, or changing.

Formulas

Notation:

P0 = intrinsic price today
D0 = last dividend paid
D1 = next year dividend
Dt = dividend in year t
r = required return (cost of equity)
g, g1, g2 = growth rates (overall, stage-1, terminal)
N = years in stage-1
TV_N = terminal value at year N
H = half-life of high-growth period (H = N/2)

General present-value setup (multi-stage):

P0 = sum_{t=1 to N} (Dt / (1 + r)^t) + (TV_N / (1 + r)^N)
TV_N = D_{N+1} / (r – g2) (use when growth becomes perpetual at g2)

Zero-growth (no growth, level dividend forever):
P0 = D / r

Constant-growth (Gordon Growth):

D1 = D0 * (1 + g)
P0 = D1 / (r – g)
Solve for r if you know price: r = (D1 / P0) + g
Solve for g if you know price: g = r – (D1 / P0)

Two-stage (g1 for N years, then g2 forever):

For t = 1..N: Dt = D0 * (1 + g1)^t
D_{N+1} = D0 * (1 + g1)^N * (1 + g2)
TV_N = D_{N+1} / (r – g2)
P0 = sum_{t=1 to N} (Dt / (1 + r)^t) + (TV_N / (1 + r)^N)

H-Model (growth declines linearly from gS to gL over 2H years):
P0 = [ D0 * (1 + gL) + D0 * H * (gS – gL) ] / (r – gL)

How to Use the Dividend Discount Calculator

Follow these steps to select a DDM model, enter dividends and rates, and get the intrinsic value per share.

Choose the model
Select Zero Growth, Constant Growth (Gordon), or Two-Stage Growth at the top. Use Zero Growth for flat dividends, Gordon for steady long-term growth, and Two-Stage for a finite high-growth period before settling to a long-run rate. Picking the wrong model leads to unrealistic valuations.
Pick the dividend input type
Under Dividend Input, choose Last Dividend (D0) if you have the most recent paid dividend, or Next Dividend (D1) if you know the upcoming dividend. The calculator will convert between D0 and D1 using the growth rate when needed. Mixing D0 with a D1 setting will misstate the value.
Enter the dividend amount
Type the dividend per share (e.g., 2 or 2.00) in your currency. This is the annual dividend for most stocks; if you have quarterly amounts, add them up first. Use a period for decimals (e.g., 1.25, not 1,25). Don’t enter total dividends for all shares—use per share.
Enter the required return (r)
Input your expected annual return as a percent (e.g., 9 for 9%). This should reflect your cost of equity or desired return. A common mistake is entering 0.09; enter 9 instead.
Enter the growth rate(s) (g)
For Gordon, enter a single long-term growth rate in percent (e.g., 4). For Two-Stage, enter the first-stage growth rate, the number of years (N), and the long-run/terminal growth rate gₗ. Ensure r exceeds the terminal growth rate; if r ≤ gₗ the formula breaks.
Review results and adjust display
Toggle “Show Decimals” if you need more precision and review the Intrinsic Value plus any stage and terminal value components. If numbers look extreme, revisit your inputs—especially r, g, and the D0/D1 selection.

Tip: Enter percentages as whole numbers (e.g., 7.5 for 7.5%), and ensure r > g (or r > gₗ in two-stage) for a valid result. This CalcMastery guide assumes dividends are annual per-share amounts.

Frequently Asked Questions

Intrinsic value is computed as P0 = D1 / (r − g). If you provide last dividend D0, the tool first computes next dividend D1 = D0 × (1 + g). The condition r > g must hold for the model to be valid. These relations follow from the Gordon–Shapiro dividend growth framework.
If you enter D0, the calculator grows it by the long-term rate g to get D1 (D1 = D0 × (1 + g)). If you enter D1 directly, that growth step is skipped and P0 = D1 / (r − g) is applied.
It assumes a level perpetuity of dividends, so price is P0 = D / r, where D is the constant dividend per period and r is the required return. This is the perpetuity special case of the Gordon–Shapiro setup when g = 0.
The calculator sums the present value of each explicitly forecast dividend during the high-growth stage and adds a terminal value at the switch date computed with the constant-growth formula: TV = D_{n+1} / (r − g_stable). Total value = PV(stage dividends) + PV(TV). This is the standard “finite explicit + perpetual continuation” construction used in dividend valuation.
r and g are annual rates entered in percent (internally treated as decimals). Currency display follows ISO 4217 conventions for codes/decimal places; monetary outputs round to the selected display precision using round-half-to-even (banker’s rounding) per NIST SP 811.

Methodology & Sources

The tool implements three DDM variants. Zero-growth uses P0 = D / r. Constant-growth (Gordon) uses P0 = D1 / (r − g) with D1 = D0 × (1 + g) when D0 is provided; inputs are annual and expressed as decimals internally, and the model is computed only when r > g, otherwise the calculation is flagged as out-of-domain. The two-stage model discounts each dividend in the first stage and adds a terminal value at the stage boundary using the constant-growth formula, then discounts that terminal value to present.

Currency handling follows ISO 4217 decimal conventions (e.g., 2 minor units for USD), and all displayed monetary figures are rounded using round-half-even to the chosen precision, aligned with NIST guidance; numeric inputs are not re-rounded internally beyond IEEE-754 defaults, but final outputs use banker’s rounding to avoid bias.

Bibliography

Myron J. Gordon (1959). Dividends, Earnings, and Stock Prices — The Review of Economics and Statistics (MIT Press) https://doi.org/10.2307%2F1927792
Accessed 2025-10-24
Myron J. Gordon, Eli Shapiro (1956). Capital Equipment Analysis: The Required Rate of Profit — Management Science (INFORMS) https://doi.org/10.1287%2Fmnsc.3.1.102
Accessed 2025-10-24
Ambler Thompson; Barry N. Taylor (2008). Guide for the Use of the International System of Units (SI) — NIST Special Publication 811 (2008 Edition) — National Institute of Standards and Technology https://doi.org/10.6028%2FNIST.SP.811e2008
Accessed 2025-10-24

Dividend Discount Calculator

Results

Formulas

How to Use the Dividend Discount Calculator

Choose the model

Pick the dividend input type

Enter the dividend amount

Enter the required return (r)

Enter the growth rate(s) (g)

Review results and adjust display

Frequently Asked Questions

Methodology & Sources

Bibliography

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