Dividend Discount Model Calculator
For a business you hold purely for its payouts, the share is worth the present value of all future dividends. The Gordon growth model collapses that infinite stream into one line: next year's dividend divided by (required return − dividend growth).
Enter the current annual dividend per share, a sustainable growth rate and your required return. Best suited to steady payers — utilities, PSUs, mature FMCG — and nearly meaningless for low-payout growth stocks.
How it works
- Value = D₁ ÷ (r − g), where D₁ = current dividend × (1 + g).
- r must exceed g — as they converge the value explodes, which is the model telling you the assumptions are inconsistent.
- Compare the model value with the market price; the implied dividend yield at the model value is shown as a sanity check.
Frequently asked questions
Which stocks suit a dividend discount model?
Mature businesses with a stable, meaningful payout and predictable growth — power utilities, established PSUs, some FMCG names. For a company paying out 10% of earnings while reinvesting the rest, dividends are the wrong lens; value the earnings (DCF) instead.
Where do I get the growth rate?
Two honest sources: the company's own dividend history (CAGR of DPS over 5–10 years), or the sustainable growth identity g = ROE × (1 − payout ratio). If those two disagree wildly, the history is telling you what management does, and the identity what it could do — model with the lower.
Why must the required return exceed the growth rate?
A perpetuity growing as fast as your discount rate has infinite present value — mathematically undefined, economically impossible (no dividend stream outgrows the economy forever). If your honest g approaches your r, the stock needs a two-stage model, not a bigger number.
How do taxes affect dividend-based valuation?
Since dividends are taxed at your slab rate in India (vs 12.5% LTCG on price gains), a rupee of payout is worth less after tax than a rupee of buyback or retention for high-slab investors. When comparing two similar yields, run the dividend tax calculator to see your actual net stream.
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This tool is an educational estimate, not investment or tax advice. Rates and rules change — verify current figures and consult a professional before acting.