Dividend Discount Model Calculator

Model Gordon growth (constant growth forever) Two-stage (fast growth, then steady)

Last annual dividend per share, D0 (Rs.)

Required return / cost of equity (%)

Find it with the CAPM calculator. Default: beta 1.0 at September 2026 rates.

Dividend growth rate, forever (%)

High-growth rate, first stage (%)

Years of high growth

Long-run growth after that (%)

Current market price (Rs., optional)

Look up any PSX price on its company page.

Calculate Value

How This Is Calculated

Gordon growth: Value = D0 × (1 + g) / (r − g)

Worked example: a share paid Rs. 10 last year, dividends grow 7% a year, and you require 19.5%. Value = 10 × 1.07 / (0.195 − 0.07) = Rs. 85.60. If the market price is Rs. 70, the model says the share is undervalued by about 22%; at Rs. 100 it looks expensive.

The two-stage model discounts each dividend of the high-growth years, then adds a terminal value (the Gordon formula applied at the end of stage one) discounted back to today.

Small changes in growth or the required return move the answer a lot, especially when the two are close, so treat the result as a range, not a single exact number.

Frequently Asked Questions

What is the dividend discount model?

The DDM values a share as the present value of all the dividends it is expected to pay. The simplest version, the Gordon growth model, assumes dividends grow at a constant rate forever: value = next year's dividend / (required return - growth rate).

When should I use the two-stage model?

Use it when a company is expected to grow its dividend faster than normal for a few years and then settle down to a steady long-run rate. It values the high-growth dividends one year at a time and adds a terminal value for everything after.

What is D0 and what is D1?

D0 is the last full-year dividend per share the company paid (check its annual report or the PSX announcements). D1 = D0 x (1 + growth) is the dividend expected next year, which is what the Gordon formula discounts.

What required return should I use?

Use the cost of equity from the CAPM. The default (19.5%) corresponds to a beta of 1.0 at September 2026 rates; our CAPM calculator finds the figure for your stock's beta.

Why does it show an error when growth is high?

The Gordon formula only works if the growth rate is below the required return; otherwise the value would be infinite. Long-run dividend growth cannot realistically exceed the growth of the economy, in rupee terms roughly the inflation rate plus real growth, so keep the long-run rate modest.

Is the DDM suitable for every stock?

No. It works best for mature companies that pay regular dividends, such as many banks, fertilizer and oil and gas companies in Pakistan. It is a poor fit for companies that pay no dividend or whose payout changes a lot from year to year.