Dividend Discount Model (DDM) Calculator: Gordon Growth

Gordon Growth Model Inputs

Current Annual Dividend Per Share (D0)

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Constant Dividend Growth Rate (g)

Required Return / Cost of Equity (r)

Current Market Price (CMP)

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Gordon Growth Dividend Discount Formula (2026)

The Gordon Growth Model (GGM) is the classical constant-growth variant of the Dividend Discount Model (DDM):

Variable	Financial Meaning	Calculation Method
D1	Next Year Projected Dividend	D0 * (1 + Growth Rate g)
r	Required Return / Cost of Equity	CAPM = Risk-Free Rate + Beta * Equity Risk Premium
g	Constant Annual Dividend Growth	ROE * Retention Rate (1 - Payout %)

Gordon Growth Dividend Discount Model (DDM)

Formula: Intrinsic Value P0 = D1 / (r - g), where D1 = Next Year Dividend = D0 * (1 + g).
Required Return (r): Calculated via CAPM (Risk-Free Rate + Beta * Equity Risk Premium).
Constant Growth Rate (g): Retention Ratio * ROE. Must be strictly less than required return (r > g).

Best Suited Stocks for DDM Valuation

Mature Dividend Aristocrats: Blue-chip PSUs, FMCG conglomerates, utility companies, and REITs with multi-year dividend growth histories.
Model Limitation: Cannot value zero-dividend tech growth stocks or companies with erratic dividend payout policies.

DDM Margin of Safety

Buy dividend-paying stocks when their Current Market Price (CMP) trades at a 15-20% discount below the intrinsic DDM fair value calculated by this model.

Frequently Asked Questions

What is the Dividend Discount Model (DDM)?

The Dividend Discount Model (DDM) values a stock by discounting its expected future dividend payments back to their present value.

What is the Gordon Growth Model formula?

Formula: Intrinsic Stock Value P0 = D1 / (r - g), where D1 = Next Year Dividend = D0 * (1 + g), r = Required Rate of Return (Cost of Equity), g = Constant Dividend Growth Rate.

What happens if Dividend Growth Rate (g) is greater than Required Return (r)?

The Gordon Growth Model requires that the discount rate (r) must be strictly greater than the dividend growth rate (g). If g >= r, the mathematical formula breaks down.

Which type of stocks are suitable for DDM valuation?

DDM is best suited for mature, stable, dividend-paying companies like blue-chip PSUs, FMCG giants, utility firms, and REITs.

Can DDM be used for tech growth companies that don't pay dividends?

No. Non-dividend-paying companies or high-growth tech firms reinvesting 100% of cash flows cannot be valued using DDM. Use DCF valuation instead.

How is Dividend Growth Rate (g) estimated?

Growth rate can be estimated using the fundamental retention formula: g = ROE * Retention Ratio (1 - Payout Ratio).

What is Required Rate of Return (r)?

Required Rate of Return (Cost of Equity) is calculated using CAPM: r = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate).

What is Multi-Stage DDM?

Multi-stage DDM assumes a high initial dividend growth rate for 5-10 years followed by a lower, stable terminal dividend growth rate indefinitely.

Dividend Discount Model DDM Calculator (2026)