The dividend discount model calculator takes beta, dividend payout ratio, dividend per share, market risk premium, return on equity and risk free rate and returns expected growth rate, expected dividend and cost of equity. It is built for quick answers, for checking somebody else’s arithmetic, and for the moments when a formula book is not within reach.
What Is the Dividend Discount Model Calculator?
The dividend discount model calculator takes beta, dividend payout ratio, dividend per share, market risk premium, return on equity and risk free rate and turns them into expected growth rate, expected dividend and cost of equity.
It is the kind of calculation you would otherwise do on the back of an envelope: mechanical, repeatable and easy to get subtly wrong without noticing.
How the Dividend Discount Model Figure Is Built
Each result is calculated from the ones before it, so the working is fully visible. That matters when the answer is going to be quoted to somebody else and you need to be able to explain where it came from.
The figures are exactly as good as the assumptions underneath them. Check the rates, the periods and the tax treatment before you rely on the result.
Reading the Result Sensibly
A small change in an input can move the result by much more than you would expect, particularly where the calculation divides by one of the figures you supplied. That is worth understanding before you rely on a figure.
For anything that will be committed to, write the inputs down beside the result. A number you can reproduce is worth far more than one you cannot explain.
A Worked Example
Working through an example, with beta set to 10, dividend payout ratio set to 5, dividend per share set to 2, the calculator returns expected growth rate of 9.5, and expected dividend of 2.19, and cost of equity of 1,005. Substitute your own figures and the same steps produce the same kind of answer.
Frequently Asked Questions
What do I need to work out expected growth rate?
Enter beta, dividend payout ratio, dividend per share, market risk premium, return on equity and risk free rate. The calculator then works through the relationship and reports expected growth rate, expected dividend and cost of equity.
What does the dividend discount model actually calculate?
It takes beta, dividend payout ratio, dividend per share, market risk premium, return on equity and risk free rate and converts them into expected growth rate, expected dividend and cost of equity using the standard relationship for this problem. Each step is applied in turn, so every output is traceable back to the numbers you typed in.
How should I enter beta?
Use the value you actually have, in the unit shown next to the field. Enter every value in the same unit system. The calculator assumes the figures you supply are consistent, so it cannot correct a mistake that happens before the calculation starts.
Is the answer exact?
It is as exact as the formula and the inputs allow. The method itself is the standard one for this problem, so the only sources of error are the figures you enter and the precision you ask for.
Does anything you type get stored?
No. The whole calculation runs inside your browser, and nothing you enter is uploaded, logged or sent anywhere.