How to Calculate Dividend Growth
What is Dividend Growth?
The dividend growth model projects future dividend payments based on a constant growth rate. Used to estimate intrinsic stock value assuming dividends grow perpetually.
Formula
Stock Value = D₁ / (r - g) where D₁ is next dividend and r is required return
Step-by-Step Guide
- 1Enter current dividend, growth rate, and required return
- 2Calculate next year's dividend
- 3Divide by the difference between required return and growth rate
Worked Examples
Input
Current div: $2, growth: 5%, required return: 10%
Result
Stock value ≈ $42
$2.10 / (0.10 - 0.05)
Common Mistakes to Avoid
- ✕Assuming growth rate exceeds required return
- ✕Using current instead of next dividend
Ready to calculate? Try the free Dividend Growth Calculator
Try it yourself →