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Valuation

Dividend Discount Model

Gordon Growth Model: P = Dā‚/(r-g). Values stocks with constant dividend growth. Perfect for stable dividend payers.

Intrinsic Value
$0

The Formula

P = Dā‚ / (r - g)
Note: r must be > g for valid result

How It Works

// Gordon Growth Model (DDM)
function dividendDiscountModel(dividend, growthRate, requiredReturn) {
    // Next year's dividend
    const D1 = dividend * (1 + growthRate);
    
    // Check for valid inputs
    if (requiredReturn <= growthRate) {
        return null;  // Invalid: r must > g
    }
    
    // Gordon Growth Model
    const intrinsicValue = D1 / (requiredReturn - growthRate);
    
    return intrinsicValue;
}

// Example: D=$2, g=5%, r=10%
// D1 = 2 Ɨ 1.05 = $2.10
// P = 2.10 / (0.10 - 0.05) = $42