About this calculator
This calculator is for education only and does not constitute investment advice. The dividend discount model is the oldest valuation idea in finance: a share is worth the cash it will pay you, discounted back to today. Dividends grow fast for a few years, then settle to a perpetual rate — two stages, one formula.
The result is extremely sensitive to the gap between the required return and the terminal growth rate: at 10% required and 3% terminal, the terminal price alone is $43.24 on a $2 dividend. Shrink that gap by one point and the value jumps by roughly a sixth. Treat the headline as the center of a range, not a price target.
How to use it
- Enter the current annual dividend per share.
- Enter the high-growth rate and how many years it lasts, then the perpetual terminal growth rate.
- Enter your required return (above the terminal growth rate) and the current share price for the upside.
The formula
Each projected year grows the dividend at g and discounts it at the required return r. The terminal price applies the Gordon formula to the first post-projection dividend, D_N × (1 + gₜ), divided by (r − gₜ) — the same division-by-a-small-gap that makes the model fragile, and the reason r must exceed gₜ. Buybacks are not modeled: a company returning cash through repurchases instead of dividends looks cheaper here than it is.
Worked example
A $2.00 dividend growing 8% for 5 years, then 3% forever, at a 10% required return: projected dividends are $2.16, $2.33, $2.52, $2.72 and $2.94, worth $9.47 in present value. The terminal price is $43.24, worth $26.85 today, for a fair value of $36.32 — 21.05% above a $30 current price.
Sources: Two-stage Gordon growth model, discrete annual discounting. The model assumes dividends grow as entered without interruption; it does not model buybacks, which return cash without dividends. Last updated: October 2026.
Frequently asked questions
Why two stages instead of one growth rate?
Because no company grows fast forever. The high-growth stage captures the next few years; the terminal stage assumes the dividend settles to a sustainable perpetual rate, usually near long-run economic growth. A single perpetual high rate would value almost anything at infinity.
What if the required return is below terminal growth?
The model refuses: the Gordon formula divides by (r − gₜ), so r ≤ gₜ gives an infinite or negative terminal price. Lower the terminal growth rate or raise the required return until the gap is positive.
Does this work for non-dividend stocks?
No. A company paying no dividend has no dividend path to discount, and the model returns nothing meaningful. Growth stocks are valued on cash flow (see the DCF calculator) or earnings multiples, not on dividends they do not pay.
Why is the terminal price most of the value?
Same reason as in a DCF: it capitalizes all future years into one number. Here $26.85 of the $36.32 fair value is the discounted terminal price. Small changes in r or gₜ move it a lot — which is why the page shows the components instead of only the headline.
What formula does this dividend discount model calculator use?
Fair value = Σ D₀×(1+g)ᵗ / (1+r)ᵗ + [D_N×(1+gₜ) / (r − gₜ)] / (1+r)ᴺ; upside = (fair value − price) / price Each projected year grows the dividend at g and discounts it at the required return r. The terminal price applies the Gordon formula to the first post-projection dividend, D_N × (1 + gₜ), divided by (r − gₜ) — the same division-by-a-small-gap that makes the model fragile, and the reason r must exceed gₜ. Buybacks are not modeled: a company returning cash through repurchases instead of dividends looks cheaper here than it is. The worked example on this page applies the formula step by step with real numbers, so you can verify the result by hand.