Intrinsic Value of Stock Using the Dividend Discount Model

This calculator estimates the intrinsic value of a stock using the Dividend Discount Model (DDM), which discounts future dividends to their present value.

Input Parameters

Calculation Results

Calculation Formula

Intrinsic Value = Σ [D₀ × (1+g)^t × (1+r)^-t] for t=1 to n + [Terminal Value] / (1+r)^n

Where:
D₀ = Current Annual Dividend
g = Dividend Growth Rate
r = Required Rate of Return
n = Number of Years
Terminal Value = [D₀ × (1+g)^n] / (r-g)

Present Value of Dividends (Years 1-10):

$0.00

Terminal Value at Year 10:

$0.00

Total Intrinsic Value:

$0.00

Intrinsic Value of Stock Using the Dividend Discount Model Calculator Usage Guide

Learn how to use the Intrinsic Value of Stock Using the Dividend Discount Model calculator and its working principles

How to Use This Calculator

  1. Enter the Current Annual Dividend (the dividend paid during the most recent year).
  2. Enter the Dividend Growth Rate (expected annual growth rate of dividends).
  3. Enter the Required Rate of Return (minimum return you expect to earn from the stock).
  4. Set the Number of Years for terminal value calculation (typically 10-15 years).
  5. Click the Calculate button to see the estimated intrinsic value.

Understanding the Dividend Discount Model (DDM)

The DDM is a fundamental valuation method that estimates the value of a stock based on the present value of its future dividends. The model assumes that the value of a stock is the sum of all its future dividends, discounted back to their present value.

For this calculator, we use the two-stage DDM approach:

  • The first stage calculates the present value of dividends for a specified number of years.
  • The second stage calculates the terminal value (the value of all dividends beyond the specified years) and discounts it back to the present.

Important Considerations

This calculator uses the Gordon Growth Model for terminal value calculation, which assumes dividends will grow at a constant rate forever after the specified years. This assumption may not hold true in all cases.

The accuracy of the DDM depends on the accuracy of the inputs. The required rate of return should be greater than the dividend growth rate for the terminal value calculation to be valid.