Dividend discount model calculator
The model suits steady companies that pay cash dividends growing at a roughly constant rate, such as banks, telecoms and utilities. Add the current share price to see whether it trades above or below the estimate.
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How to use it
- Enter last annual dividend per share, expected yearly dividend growth, your required annual return and current share price (optional).
- The result appears straight away and updates as you edit.
- Copy the result, or copy a link that keeps the same values to share it.
How it is calculated
Next year's dividend D1 = last annual dividend × (1 + growth ÷ 100). Fair value = D1 ÷ (required return ÷ 100 - growth ÷ 100). Implied return at the market price = D1 ÷ price × 100 + growth.
Example
Inputs: Last annual dividend per share = 2, Expected yearly dividend growth = 5 %, Your required annual return = 10 %, Current share price (optional) = 40. Result: Estimated fair value per share: 42.00; Expected dividend next year: 2.1; Dividend yield at fair value: 5%.
Limits and caveats
- It assumes dividends grow at the same rate forever, so it does not fit companies that pay no dividend or whose payouts swing widely.
- The result is very sensitive to the gap between required return and growth; moving either by one point can change the value a lot.
- Taxes and zakat are ignored, and the value is an estimate built on your assumptions, not a buy or sell recommendation.
Questions about this tool
Why must the required return be higher than growth?
The denominator of the formula is the gap between them. If they are equal it becomes zero, and if growth is higher the value turns negative, and neither makes sense. In practice, growth that lasts forever rarely exceeds long-run economic growth.
How do I choose the required return?
It is the lowest yearly return you would accept for the stock's risk. Many investors start from the government bond yield and add a risk premium, often landing between 8% and 12% for shares.
What does fair value versus price mean?
A positive figure means the estimate is above the market price by that percentage, and a negative one means the price is above the estimate. The implied return shows what you would earn each year buying at today's price if the growth assumption holds.