Overview
Enter a stock's current annual dividend (D0), an expected constant dividend growth rate (g), and a required rate of return (r) to calculate its intrinsic value per share using the Gordon Growth Model: next year's dividend D1 = D0 × (1 + g), and intrinsic value P0 = D1 ÷ (r − g). The model assumes the dividend grows at the same constant rate indefinitely, which makes it best suited to mature, stable dividend payers rather than fast-growing or non-dividend-paying companies. The required rate of return must be greater than the growth rate for the formula to produce a sensible result - if r is less than or equal to g, the denominator becomes zero or negative, implying an infinite or negative value that doesn't reflect any real stock price, so the calculator rejects that input with a clear message instead of showing Infinity or a nonsensical negative number. Useful for a first-pass valuation of a dividend-paying stock or finance coursework on equity valuation models. Runs entirely client-side, and this is an informational estimate, not financial advice.
Best for: Estimating a dividend-paying stock's intrinsic value for a first-pass equity valuation
How to use this tool
- Enter the current annual dividend (D0). The most recent full-year dividend per share the company paid.
- Enter the expected growth rate and required return. The assumed constant annual dividend growth rate, and your required rate of return as an investor.
- Read the intrinsic value. D1 = D0 × (1 + g), then P0 = D1 ÷ (r − g) - the model's estimate of fair value per share.
Frequently asked questions
The calculator rejects the input with a clear error message rather than showing Infinity or a negative number. Mathematically, r ≤ g makes the (r − g) denominator zero or negative, which would imply an infinitely large or negative stock value - a sign the model's constant-growth assumption doesn't hold for those inputs, not a real valuation.
The Gordon Growth Model assumes the dividend grows at exactly the same constant rate forever. Fast-growing companies (or ones with volatile or no dividends) don't fit that assumption well, since their growth rate is unlikely to stay constant indefinitely - the model is best suited to established companies with a long history of steady, predictable dividend growth.
Both are present-value models that discount a future stream of payments back to today. DDM assumes that stream is a dividend growing at one constant rate forever, which lets it collapse into a simple formula; the DCF Calculator instead lets you enter each year's cash flow individually, which is more flexible but requires estimating every year rather than just a single growth rate.