DDM Intrinsic Value Calculator
Use the Gordon Growth Model to estimate fair value for a dividend-paying stock.
What Is the Dividend Discount Model?
The dividend discount model (DDM) estimates what a stock is worth today by adding up the value of all future dividends. If a company is stable, profitable, and returns cash to shareholders consistently, DDM can be a practical valuation method.
This page uses the Gordon Growth version of DDM, which assumes dividends grow at a constant rate forever. It is simple, fast, and especially useful for mature dividend stocks.
Formula Used in This Calculator
Gordon Growth DDM
Intrinsic Value (P0) = D1 / (r - g)
- D1 = expected dividend per share next year
- r = required rate of return (discount rate)
- g = perpetual dividend growth rate
The model only works when r > g. If growth equals or exceeds your required return, the formula breaks down.
How to Use This Dividend Discount Model Calculator
- Enter your estimate for next year’s dividend (D1).
- Enter your required return based on the stock’s risk.
- Enter a sustainable long-term dividend growth rate.
- (Optional) Enter the current market price to compare fair value vs. market value.
- Set a margin of safety to create a conservative buy target.
Click Calculate Fair Value. You’ll get intrinsic value, implied yield, buy target, and valuation status.
Example
Suppose you expect a company to pay a $2.50 dividend next year, you require a 9% return, and you estimate long-term dividend growth at 4%.
P0 = 2.50 / (0.09 - 0.04) = 2.50 / 0.05 = $50.00
If the stock currently trades at $42, your estimate suggests potential upside. If it trades at $58, it may be overvalued under your assumptions.
Interpreting the Output
Intrinsic Value
The model’s estimate of fair value today.
Upside/Downside
Comparison between intrinsic value and current market price (if provided).
Margin-of-Safety Buy Price
A discounted buy target to reduce error risk in your assumptions.
Sensitivity Table
Small changes in growth assumptions can change value significantly. Use the sensitivity rows as a reminder that valuation is a range, not a single perfect number.
When DDM Works Best
- Established companies with a long dividend history
- Businesses with predictable cash flows
- Reasonably stable payout policy and growth profile
When DDM Is Less Useful
- High-growth companies that do not pay dividends
- Cyclical companies with unstable payouts
- Firms with frequent dividend cuts or irregular capital returns
Important Limitations
DDM is very sensitive to inputs, especially r and g. A 1% change can materially shift fair value. Always combine DDM with other valuation methods such as discounted cash flow (DCF), earnings multiples, and balance-sheet analysis.
This calculator is for educational use and is not investment advice.