Dividend Discount Model Calculator

Gordon Growth Dividend Discount Model (DDM) Standards

The Gordon Growth Model (DDM) is the foundational equity valuation method that prices a stock as the present value of all its future perpetual dividend payments:

• Fundamental Formula: P^* = (D_1) / (r - g) = (D_0 ×) / (r - g)

• D_0: Current annual dividend paid per share.

• D_1: Expected dividend in year 1).

• g: Constant perpetual dividend growth rate (must be less than r).

• r (or K_e): Investor's required rate of return / cost of equity.

• Forward Dividend Yield: (D_1) / (Current Market Price) × 100\%

• Margin of Safety: P^* - Market PriceMarket Price × 100\%

Model Assumptions & Constraints

• Requirement: r > g. If g r, the denominator becomes zero or negative, making the formula mathematically undefined.

• Applicability: Best suited for mature, stable, dividend-paying companies with predictable cash flow growth (e.g. Dividend Kings, regulated utilities, consumer staples).

How to Use This Calculator

Enter your Current Annual Dividend D0 (/share) (e.g. 1.94), Perpetual Dividend Growth Rate g (%) (e.g. 5.0), Required Rate of Return r / Ke (%) (e.g. 8.0), Current Market Stock Price (/share) (e.g. 65.00), and Dividend Aristocrat Benchmark — choose from Custom Dividend Stock, Coca-Cola (KO: D0 1.94, g 5.0%, r 8.0%, P 65), Johnson & Johnson (JNJ: D0 4.96, g 5.5%, r 8.5%, P 160). Results update instantly as you type — adjust any value to compare scenarios.

The Formula

Formula Reference: Dividend Discount Model Calculator

Input variables:

currentDividendD0 — Current Annual Dividend D0 (/share)

dividendGrowthRateG — Perpetual Dividend Growth Rate g (%)

requiredRateOfReturnR — Required Rate of Return r / Ke (%)

currentStockPrice — Current Market Stock Price (/share)

Computed outputs:

intrinsicValuePerShare — Intrinsic Fair Value (P*)

nextYearDividendD1 — Projected Next Year Dividend (D1)

forwardDividendYield — Forward Dividend Yield

marginOfSafetyPercent — Margin of Safety / Discount

targetBuyPrice15Pct — 15% Margin of Safety Target

Mathematical relationships extracted from calculation logic:

gDec = g / 100.0

rDec = r / 100.0

d1 = d0 * (1.0 + gDec)

intrinsicVal = safeDiv(d1, rDec - gDec)

fwdYield = safeDiv(d1, price) * 100.0

marginPct = safeDiv(intrinsicVal - price, price) * 100.0

buyTarget = intrinsicVal * 0.85

Standard: Published population-average reference data (CDC, USDA, DOE)

Worked Example

Johnson & Johnson (JNJ) with a 4.96 dividend growing at 5.5% against an 8.5% required return has an intrinsic value of 174.45 per share, indicating the stock is undervalued when trading at

160.

Understanding Your Result

This calculation gives a precise result based on the inputs you provided. For practical decisions, consider whether the result changes meaningfully with slight variations in your inputs — if a 5–10% change in input causes a significant output change, gather more precise input data before deciding. Use this tool to quickly compare multiple scenarios side by side.