Dividend Based Valuation (Gordon Growth Model) Calculator

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Dividend Based Valuation (Gordon Growth Model) Calculator

Dividend Based Valuation estimates the value of a company based on the present value of its expected future dividends, reflecting the cash returns available to shareholders. More info →

Input

Enter dividend assumptions and market data.

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How This Calculator Works

This calculator values a share by the dividends it is expected to pay forever, growing at a steady rate. It uses the Gordon Growth Model: next year's dividend divided by the gap between your required return and the growth rate. If you enter the market capitalisation, it also tells you whether the company looks undervalued or overvalued.

The Formula

Intrinsic Share Price = DPS × (1 + g) ÷ (Ke − g)

DPS = current dividend per share · g = dividend growth rate · Ke = required return · Equity Value = Price × Shares

What Each Input Does

Dividend Per Share: The dividend paid per share now. It is grown by one year to get next year's dividend.
Required Return (%): The return you want as a shareholder. It must be higher than the growth rate.
Dividend Growth Rate (%): How fast dividends are expected to grow each year, forever.
Shares Outstanding: Used to turn the share price into a total equity value.
Market Capitalisation (optional): The company's current market value. If entered, it is compared with the equity value.

Step by Step

Next year's dividend = DPS × (1 + growth).
It is divided by (required return − growth) to give the intrinsic share price.
The share price is multiplied by shares outstanding to give equity value.
If market capitalisation is entered, it is compared with equity value.

Reading the Result

Undervalued – market cap is below the calculated equity value.

Overvalued – market cap is above it.

Fairly valued – the two are equal.

Quick Example

DPS 5, required return 12%, growth 5%, 100,000 shares, market cap 6,000,000. Next year's dividend is 5.25, so the intrinsic price = 5.25 ÷ 0.07 = 75.00 and the equity value is 7,500,000. The market cap is lower, so the company appears undervalued.