Dividend Discount Model Calculator - Gordon Growth

The Gordon growth dividend discount model (DDM) values a stock as a growing perpetuity of dividends. It is most useful for mature companies that pay a cash dividend expected to grow at a roughly constant long-run rate. The dividend discount model calculator implements P₀ = D₁ ÷ (r − g), with D₁ = D₀ × (1 + g). Growth rate g and required return r are entered as decimals: 0.05 for 5% and 0.10 for 10%. With a $2.00 current dividend, g = 0.05, and r = 0.10, next year’s dividend is $2.10 and intrinsic value is $42.00. The optional years input projects D₀ × (1 + g)^years so you can see a future dividend; it does not switch the model to a multi-stage DDM. Required return must exceed growth or the denominator is zero or negative and the perpetuity has no finite value. Use Gordon growth as a sanity check on a high-quality dividend payer, to reverse-engineer the growth rate implied by a market price, or to teach the r − g spread. It is a poor fit for non-dividend stocks, cyclical payers, or firms growing faster than the discount rate for a long stretch. Those cases need a two-stage model or a different valuation method. The model assumes dividends are the relevant cash flow to equity, growth lasts forever, and r is an appropriate equity required return. Inflation, payout changes, and share buybacks are not modeled unless they are already reflected in D₀ and g. Because value is extremely sensitive to r − g, test nearby rates rather than relying on a single $42-style point estimate. A useful reverse check is to plug in today’s market price as if it were intrinsic value and ask what growth rate the market is implying at your required return. If implied g is far above GDP-plus-inflation, the Gordon growth story is too optimistic. Keep D₀ as the expected recurring annual dividend, not a special extra. The projected dividend for optional years is D₀ compounded at g; it is a path check, not a second valuation identity.