Dividend Discount Model Calculator
Gordon Growth Model
Single-stage constant growth DDM
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Two-Stage DDM
High growth followed by stable growth
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Formula
Gordon Growth: P = D1 / (r - g) | D1 = D0 * (1 + g) | Two-stage: P = sum(Dt/(1+r)^t) + Pn/(1+r)^n
Frequently Asked Questions
What is the dividend discount model?
The dividend discount model (DDM) values a stock as the present value of all its expected future dividends. The Gordon Growth Model is the simplest form, assuming dividends grow at a constant rate forever.
When does the Gordon Growth Model fail?
The model requires that the required return exceeds the growth rate (r > g). If g >= r, the model produces infinite or negative values. It also assumes constant perpetual growth, which may not be realistic for high-growth companies.
What is a two-stage DDM?
A two-stage DDM accounts for companies with an initial high-growth phase followed by a stable, lower growth rate. This is more realistic for companies expected to mature over time.