Two-Stage Dividend Discount Model Calculator
What a share is worth today if its dividend grows fast for some years and then settles into slower, steady growth, with how much of that value sits beyond the fast years.
Results
The dashed line marks the value you entered.
What this tool does
The single-stage Gordon formula assumes one growth rate for ever, which suits mature payers; a younger company is better modelled as a fast-growth stage followed by a settled one. This tool discounts each dividend of the first stage, then values everything after as a growing perpetuity D₁ ÷ (r − g) at the end of that stage. The last result is the sobering one: for most inputs the bulk of the value lies in the terminal value, so a small change in the long-run growth or the required return moves the answer a great deal. The model needs the required return to exceed the long-run growth.
Formula
P = Σ D₀(1+g₁)ᵗ ÷ (1+r)ᵗ (t = 1…n) + D₀(1+g₁)ⁿ(1+g₂) ÷ (r − g₂) ÷ (1+r)ⁿ
Variables
| Symbol | Meaning | Unit |
|---|---|---|
d0 | Last annual dividend per share (D₀) | — |
g1 | Dividend growth in the first stage | % |
n | Years of first-stage growth | a |
g2 | Long-run growth after that | % |
r | Return you require per year | % |
P | Value per share today | — |
P1 | Of which: dividends in the first stage | — |
PT | Of which: terminal value, discounted | — |
SH | Share of the value that sits in the terminal value | % |
Worked example
- Last annual dividend per share (D₀)2
- Dividend growth in the first stage8 %
- Years of first-stage growth5 a
- Long-run growth after that3 %
- Return you require per year9 %
- Value per share today42.52
- Of which: dividends in the first stage9.73
- Of which: terminal value, discounted32.79
- Share of the value that sits in the terminal value77.1 %
Limitations
- This is an informational calculator, not personalised financial advice. Rates, fees, taxes and contract conditions vary between institutions and countries.
- The result is an estimate based only on the values you type. Real situations often include factors this calculator does not know about.