# Dividend Discount Model Calculator (DDM)

URL: https://speedycalculator.com/calculators/finance/dividend-discount-model/
Last updated: 2026-10-25

> The dividend discount model calculator values a stock as the present value of its future dividends with the Gordon growth model – estimating the growth rate from ROE and payout ratio and the required return from the CAPM if you wish.

## Inputs

- Current dividend per share
- Dividend payout ratio (%)
- Return on equity (%)
- Risk-free rate (%)
- Market risk premium (%)
- Beta
- Current share price (for comparison)

## Results

- Expected growth rate
- Cost of equity (required return)
- Expected dividend next year
- Stock value (DDM)
- Upside vs current price

## Formula

```
Growth g = ROE × (1 − payout ratio)
Required return r = risk-free rate + β × market risk premium
Next dividend D₁ = D₀ × (1 + g)
Stock value = D₁ ÷ (r − g)
```

## Explanation

The Gordon growth model suits mature companies with steady dividend growth such as utilities and consumer staples. It is very sensitive to r − g, and doesn't work when growth is close to or above the required return.

### How to use the Dividend Discount Model Calculator

- **Current dividend per share**
- **Dividend payout ratio**
- **Return on equity**
- **Risk-free rate**
- **Market risk premium**
- **Beta**
- **Current share price (for comparison)**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the current dividend per share, the payout ratio and ROE (for growth), and the risk-free rate, market risk premium and beta (for the required return).

### Tips

- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.

### Common mistakes to avoid

- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.

### Inputs explained

FieldWhat to enterCurrent dividend per shareAmount in your currencyDividend payout ratioIn %Return on equityIn %Risk-free rateIn %Market risk premiumIn %BetaA numberCurrent share price (for comparison)Amount in your currency

### What each result means

- **Expected growth rate** = [Return on equity]×(1 - [Dividend payout ratio]÷100)
- **Cost of equity (required return)** = [Risk-free rate] + [Beta]×[Market risk premium]
- **Expected dividend next year** = [Current dividend per share]×(1 + [Expected growth rate]÷100)
- **Upside vs current price** = ([Stock value (DDM)]÷[Current share price (for comparison)] - 1)×100

### Example values

How the main result changes when **Current dividend per share** changes and everything else stays at the example values above:

Current dividend per shareStock value (DDM)154.971.582.462109.952.5137.443164.924219.9

## Worked example

Inputs — Current dividend per share: $2; Dividend payout ratio: 40 %; Return on equity: 12 %; Risk-free rate: 4.2 %; Market risk premium: 5.5 %; Beta: 0.9; Current share price (for comparison): $100.

Results — Expected growth rate = 7.2 %; Cost of equity (required return) = 9.15 %; Expected dividend next year = $2.14; **Stock value (DDM) = $109.95**; Upside vs current price = 9.95 %.

## FAQ

**What is the dividend discount model?**
A valuation method that discounts expected future dividends.

**What happens if growth exceeds the required return?**
The formula breaks down – use a multi-stage model instead.

**How is growth estimated?**
Sustainable growth = ROE × retention ratio.

**What formula does the Dividend Discount Model Calculator use?**
Growth g = ROE × (1 − payout ratio).


## Sources

- [Corporate Finance Institute – financial ratios](https://corporatefinanceinstitute.com/)