Dividend Discount Model Calculator: Gordon Growth, Multi-Stage and H-Model
Originally published: 25/04/2020 08:17
Publication number: ELQ-84601-1
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Dividend Discount Model Calculator: Gordon Growth, Multi-Stage and H-Model

Determine the intrinsic value of a stock using variations of the Dividend Discount Model

Description
The Dividend Discount Model (DDM) is a subset of the Discounted Cash Flow (DCF) approach to estimating a security's intrinsic value. There are two main categories when forecasting dividends: 1) Assigning a constant growth assumption across the entire stream of future dividends (The Gordon Growth Model), and 2) Forecasting a finite number of dividends individually up to a terminal value (multi-stage stage dividend discount model and H-model). The following fully-customizable models are included:

- Cost of equity calculation (CAPM and using DDM)
- Calculation for future expected growth rate (Sustainable Growth Rate and DDM)
- Two-stage DDM
- Three-stage DDM
- H-Model
- Input your own dividends to create a customized stream of payments
- Input your own dividends and expected stock price

This model assumes that dividends are being paid at the end of each year. The model also assumes that a stock price is within +/-5% of its intrinsic value in order to be fairly valued.

The DDM is helpful when a company has a steady stream of dividend payments. However, It is important to recognize the limitations of each dividend discount model. It cannot be used for companies with no dividends, it relies on growth/cost of equity assumptions, and it does not account for share buybacks.

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Further information

Using a variety of alterations of the dividend discount model to determine intrinsic value of a stock

Microsoft Excel

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