Calculator Inputs
Large screens show three columns, smaller screens show two, and mobile shows one. Results appear above this form after calculation.
Example data table
| Scenario | D0 | Required Return | High Growth | High-Growth Years | Perpetual Growth | Market Price | Model Value |
|---|---|---|---|---|---|---|---|
| Stable utility stock | $2.40 | 9.00% | — | — | 4.00% | $45.00 | $49.92 |
| Growing dividend payer | $2.40 | 9.00% | 10.00% | 5 | 4.00% | $45.00 | Varies by assumptions |
| Conservative case | $2.40 | 10.00% | 8.00% | 4 | 3.00% | $45.00 | Lower than base case |
Formula used
Stable-growth model: V0 = D1 / (r - g)
Two-stage model:
V0 = Σ[Dt / (1 + r)^t] + [D(N+1) / (r - g)] / (1 + r)^N
Next dividend: D1 = D0 × (1 + g)
Terminal dividend: D(N+1) = DN × (1 + g)
Upside or downside: ((Intrinsic Value / Market Price) - 1) × 100
Margin of safety: ((Intrinsic Value - Market Price) / Intrinsic Value) × 100
How to use this calculator
- Choose a stable-growth model or a two-stage dividend model.
- Enter the current annual dividend paid per share.
- Set your required return based on risk and opportunity cost.
- Enter long-run growth, or use a high-growth period plus perpetual growth.
- Add the current market price to compare intrinsic value against today’s price.
- Set projection years and sensitivity settings for charts and scenario analysis.
- Click Calculate Value to view results above the form.
- Use the CSV and PDF buttons to save the projection report.
Frequently asked questions
1) What does the dividend discount model calculate?
It estimates a share’s intrinsic value by discounting future dividends back to today. It works best for companies with established dividend policies and reasonably predictable growth patterns.
2) When should I use the stable-growth version?
Use it when dividends are expected to grow at a steady long-term rate. Mature utilities, consumer staples, and other consistent dividend payers often fit this model better than early-stage companies.
3) When is the two-stage model better?
Use the two-stage model when a company may grow dividends faster for several years before settling into a lower perpetual rate. It captures transition periods more realistically than a single-growth assumption.
4) Why must growth stay below required return?
If long-run growth equals or exceeds required return, the terminal value formula breaks down mathematically and produces unrealistic values. Long-term growth should remain conservative and economically sustainable.
5) How should I choose the required return?
Use a return that reflects business risk, inflation expectations, and your next-best investment option. Many investors start with a risk-free rate and add a company-specific equity risk premium.
6) Why is terminal value so important?
For many dividend payers, much of the total valuation comes from dividends expected far in the future. That is why small changes in perpetual growth or discount rate can shift fair value significantly.
7) What does margin of safety tell me?
Margin of safety compares intrinsic value with market price. A larger positive margin may suggest more room for error in assumptions, while a negative margin can imply overvaluation under your inputs.
8) Can I rely on this model alone?
No. Use it alongside payout ratio analysis, earnings durability, debt review, management quality, and sector conditions. A strong valuation model still depends on realistic business assumptions and careful judgment.