How this calculator works
Value an indefinitely growing dividend stream with the Gordon growth model. Enter the last annual dividend, a perpetual growth rate and required equity return, or derive growth from retention and ROE and equity cost from CAPM. The model is highly sensitive when the required return is close to growth and does not suit unstable distributions.
Formula
D1 = D0 × (1 + g). Value = D1 / (ke - g), requiring ke > g and g > -100%. Assumption mode uses g = (1 - payout) × ROE and ke = risk-free rate + beta × market risk premium.
Worked example
A $2 last dividend growing at 4% gives D1 = $2.08. At a 10% required return, value is $34.6667. A $3 dividend, no growth and 12% required return give $25.
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Frequently asked questions
Why must the required return exceed growth?
Otherwise the present value of an endless growing stream does not converge under this model.
Is the dividend input annual or quarterly?
Enter the total last annual dividend. Use annual growth and an annual required return with it.
Can I use ROE to estimate growth?
Assumption mode uses beginning-equity ROE times retention. This presumes stable profitability, payout and financing policy indefinitely.