Dividend Discount Model Calculator

Last updated October 30, 2026

The dividend discount model values a stock by the dividends it will pay, discounted back to today. Stock Valuation Studio carries the family in three forms, the Gordon growth model, the two-stage model, and the H-model, and this page opens the Studio on the Gordon form, the one the other two are built from.

The Gordon Growth Model

The oldest and simplest form assumes the dividend grows at one steady rate forever. Next year's dividend, divided by the gap between the return the buyer requires and the growth rate, gives the value:

The formula carries its own warning inside it. As growth approaches the required return, the denominator shrinks toward zero and the value runs away, so the model only makes sense for growth rates that a mature payer can sustain indefinitely, well below the required return.

The Two-Stage Model and the H-Model

Real payers often grow the dividend faster for a while. The two-stage form projects ten explicit years of dividends, five at a short growth rate taken from the company record and five fading down to the long rate, then applies the Gordon form to year ten's dividend, grown once more, as the terminal value. The two-stage form opens in the Studio here. The H-model reaches the same fade in a single closed form, the Fuller and Hsia formula:

where D is the current dividend and r is the required return. Open the H-model in the Studio here. When the three forms print the same number for a company, as they do when the short and long growth rates meet, the Studio counts the family once in its medians, so one idea never votes three times.

A Worked Example: Coca-Cola

Coca-Cola has raised its dividend for decades and paid four quarterly dividends across the latest twelve months in the Studio record: $0.51 in December 2025, then $0.53 in March, June, and September 2026, a trailing year of $2.10 per share. On the family preset settings, a required return of nine percent and growth of three percent, the Gordon form gives:

The trailing yield on those payments stands at about 2.3 percent of the price, comfortably above the one percent floor described below, so the family prints for Coca-Cola. The result is best read the way all dividend values should be read: as the worth of the payment stream alone, at a stated growth rate, taking no credit for buybacks or for growth faster than three percent.

The Under-1 Percent Rule

A dividend model divides by a small gap, and for a company whose dividend is a token the arithmetic turns meaningless: a yield under one percent can be grown into almost any answer. The Studio therefore holds the family to a plain rule. When the trailing yield is under one percent of the price, the dividend models report that they are not meaningful for the company, and they stay out of every median and blend. Apple is the standing example, with a trailing yield of about 0.31 percent. Its workup carries the explanation where the value would have stood, which is the honest place for it.

When the Family Fits, and When It Does Not

Best for companies whose dividend is the main event: utilities, consumer staples, telecoms, energy majors, and other mature payers with long, steady records, where the payment is covered by cash flow and has survived hard years.

Not for companies that return cash mainly through buybacks. Their dividend record understates what owners receive, because the cash leaves through the share count instead of the payment. The better tool is the DCF calculator, which counts that cash directly, because buybacks raise free cash flow per share as the count falls.

Not for non-payers, and not under the one percent floor. A company that pays no dividend has no stream to discount, and the workup says so in words. A token dividend makes the arithmetic meaningless for the same reason. The better tools are the DCF calculator for the cash record and the Peter Lynch fair value where delivered growth is the story.

Not for payers in the act of cutting. The trailing dividend then describes a policy the company has already abandoned. The better tool is the DCF calculator, read on cash flow until a new payment record exists.

Questions

What growth rate does the short rate use? In the two-stage and H forms, the record earnings growth, held between zero and fifteen percent. In the Gordon form, the single growth setting on the workup, preset to three percent, which any user can change.

What if growth equals or exceeds the required return? Then the formula has no finite answer and the model reports its state rather than printing one. A dividend cannot grow faster than the required return forever, and a calculator that pretends otherwise is not helping.

Why does the yield floor sit at one percent? Below it, the dividend is a minor part of the return and the model output is dominated by the growth assumption. The floor keeps the family answering companies where the dividend genuinely carries the value.