i What this calculator does
The dividend discount model values a share as the present value of its future dividends. In its simplest form, the Gordon growth model, that reduces to next year's dividend divided by the required return less the growth rate.
It works where dividends are the main return and the growth rate is modest and stable, which describes many large South African financial and consumer companies. It breaks entirely where growth approaches the discount rate, and the calculator refuses rather than printing nonsense.
This calculator is for educational purposes only. Results are estimates and may vary depending on market conditions, spreads, commissions, platform settings, and exchange rates. It should not be considered financial advice.
How to use the Dividend Discount Model Calculator
Every field has a working default, so the calculator produces a result the moment the page loads. Replace the defaults with your own figures and the output updates when you press the button.
- 1. Current Dividend Per Share (R)
- 2. Dividend Growth Rate (%)
- 3. Required Return (%) Your cost of equity
- 4. Current Share Price (R)
The result panel reports:
- Cannot value Required return must exceed growth
- Intrinsic Value From these assumptions
- Implied Return at This Price What the market is pricing
Alongside the headline figures, the calculator reports implied return at this price, next year dividend, current yield, required return. Those are the numbers that usually explain why the headline result came out where it did.
The breakdown below the result shows every step of the arithmetic, so you can check the figure rather than trust it. The formula panel names each input as it is used, which is useful if you want to reproduce the calculation in a spreadsheet.
Frequently asked questions
When does the dividend discount model work?
Where dividends are the main form of return, the payout is stable, and growth is modest and predictable. Large banks, insurers and consumer staples fit. Growth companies that pay nothing, and cyclicals whose dividends swing with commodity prices, do not.
Why must the required return exceed growth?
Because the formula divides by the difference between them. If growth equals the required return the denominator is zero and the value is infinite; if growth is higher the value turns negative. Both are arithmetic artefacts rather than valuations.
What growth rate is defensible?
Something at or below the long-run growth of the economy, because a company growing faster than the economy forever would eventually be the economy. For South Africa that anchors the number well below what a single good year might suggest.
What is the implied growth rate?
The growth the current price assumes, given your required return. It is often the most useful output: instead of asking whether your growth estimate is right, you can ask whether the market's is reasonable.
How sensitive is the result?
Very. A one percentage point change in either rate can move the value by twenty percent or more when the spread is narrow. That sensitivity is the model's main weakness and the reason to run it as a range.
Can I use it on an ETF?
In principle, using the fund's distribution and a long-run growth assumption. In practice an index fund's distributions depend on the mix of holdings, so the result is a rough sanity check rather than a valuation.
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