The dividend discount model is a method of the evaluate the true value of the stock. In DDM, stock value is equal to the sum of the company's all future dividend payments discounted back to their present value.
The advantage of this concept is that it evaluates the current stock price of the company. The stock price can be changed or influenced by the current condition of the market, and the condition of the company. It is based on the concept of the time value of money - it means that the value of money changes with time.
The dividend discount model formula to calculate present stock value, expected growth rate, expected dividend, and cost of equity is as follows:
First calculate, Present stock value = Expected dividend / (Cost of equity - Expected growth rate)
Expected Growth Rate = (1 – Dividend Payout Ratio) * Return on Equity
Expected Dividend = Dividends per Share * (1 + Expected Growth Rate)
Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium
What can you do with Dividend Discount Model Calculator?
- It helps to calculate the current value of the stock and helps to project your future profit earnings.
- Users can see the accurate value of the present stock value, expected dividend, expected growth rate and cost of equity. And also can see the stock value in words
- This calculator helps to share your calculations by URL.