Value per share = D1 / (r - g); where D1 = next year's dividend, r = cost of equity, g = dividend growth rate, g < r
The dividend discount model values a stock as its dividends, discounted to today.
What it is
The dividend discount model values a share by forecasting its future dividends and discounting them to today at the cost of equity. The simplest version, the Gordon Growth Model, assumes dividends grow at a constant rate forever. It works best for mature, stable companies that pay steady, predictable dividends.
Why it matters
For dividend-focused investors and steady payers like utilities, banks, and consumer staples, the DDM is a clean, intuitive way to estimate intrinsic value. Its main limitation is that it is useless for companies that pay no dividend and unreliable for those with erratic payouts.
How it's calculated
In the constant-growth (Gordon) form, divide next year's expected dividend by the cost of equity minus the dividend growth rate. The growth rate must be below the cost of equity for the formula to work. Multi-stage versions handle changing growth by forecasting dividends year by year before applying the terminal formula.
How Quintarthai uses it
Dividend history and payout trends to anchor a DDM growth assumption are shown on each company's deep-analysis page under the key-metrics grid and Financials tab.
Cross-border note. Canadian eligible dividends carry a dividend tax credit for Canadian residents, while US dividends do not, and cross-border dividends face treaty withholding. The DDM values the pre-tax stream; your after-tax return depends on your residency and account type.
FAQ
Can I use the DDM for a company that doesn't pay dividends?
Not directly. With no dividends there is nothing to discount, so a free-cash-flow model is the better choice. The DDM is only suitable for established, consistent dividend payers.
What if the growth rate is close to the cost of equity?
The formula becomes unstable and produces very large or negative values as g approaches r. Keep the perpetual growth rate well below the cost of equity and at or under long-run economic growth.
Check your understanding
For which type of company is the dividend discount model least suitable?
With no dividends there is nothing to discount, so the DDM is unsuitable for non-payers, where a free-cash-flow model is the better choice.