Value a dividend-paying stock the way income investors do. Enter the current annual dividend, its expected growth rate and your required return, and the Gordon Growth model estimates the intrinsic value per share.
Answer first: the dividend discount model values a stock as the present value of all the dividends it will ever pay. The most common version — the Gordon Growth model — assumes those dividends grow at a steady rate forever, which collapses an infinite stream into one clean formula. This dividend discount model calculator takes the current dividend, a growth rate and your required return, and returns the price at which the stock is fairly valued for you.
Value = D₁ ÷ (r − g), where D₁ = D₀ × (1 + g)
Example: a stock pays $2.00 today, dividends grow 5% a year and you require 9%. Next year's dividend is $2.00 × 1.05 = $2.10, so value = 2.10 ÷ (0.09 − 0.05) = 2.10 ÷ 0.04 = $52.50. If the stock trades below $52.50 it looks cheap on these assumptions; above it, expensive.
The intuition is that a share is worth the cash it hands you over time, discounted because a dollar next year is worth less than a dollar today. Faster dividend growth (a bigger g) raises the value; a higher required return (a bigger r) lowers it because you are demanding more compensation for risk. The tiny gap between r and g sits in the denominator, which is why the model is so sensitive: nudging growth from 5% to 6% here lifts the value from $52.50 to over $70.
The formula only works when the required return is greater than the growth rate. If dividends grew faster than your discount rate forever, the stock would be worth infinity — which is nonsense, and the calculator will warn you instead of returning a number. In practice no company can out-grow the economy indefinitely, so a sustainable long-run g is usually low, often 2%–5%, in line with nominal GDP. Reserve high growth rates for short-run forecasts, not the perpetual rate this model assumes.
The Gordon Growth model shines for mature, steady dividend payers: utilities, consumer staples, big banks, REITs — companies with a long, predictable payout history. It falls apart for firms that pay no dividend at all (there is nothing to discount), for fast growers whose payout is nowhere near steady, and for cyclical businesses that cut dividends in recessions. For those, analysts turn to a free-cash-flow DCF instead, which values the whole business rather than just the dividend.
Notice that the implied dividend yield the model produces equals exactly r minus g — in our example, 9% minus 5% is a 4% forward yield. That is a handy sanity check: if a stock's actual dividend yield plus its realistic growth rate is far from your required return, one of your assumptions is off. Because the answer swings so hard on small input changes, treat the model as a framework for testing scenarios — run it with conservative and optimistic growth rates — rather than a precise price target.
Reality check: dividends can be cut at any time and no growth rate lasts forever, so the model's output is only as good as its assumptions. This is an educational tool, not investment advice or a recommendation to buy any stock. See the U.S. SEC at investor.gov for valuation basics.
Cross-check with the DCF calculator, set your required return with the CAPM calculator, measure current income with the dividend yield calculator, and project rising payouts with the dividend growth calculator.
Last updated July 4, 2026 · Written by Mustafa Bilgic. Educational only — not financial advice.
It is the constant-growth version of the dividend discount model. It assumes a company's dividend grows at a fixed rate forever and values the stock as next year's dividend divided by the required return minus the growth rate.
If growth exceeded the discount rate forever, the present value of the dividends would be infinite, which is impossible. The model is only valid when r is greater than g, so the calculator blocks other cases.
No. With no dividend there is nothing to discount, so the model returns zero or is undefined. For non-payers, use a free-cash-flow DCF or an earnings-based method instead.
Because r minus g sits in the denominator. When that gap is small, a tiny change in growth causes a large change in value. Always test a range of conservative and optimistic growth assumptions.