Dividend discount calculator

Rearrange $P = D_1 / (k - g)$ and you get $D_1 / P = k - g$. The dividend yield the price implies is exactly the gap between the required return and growth. On the default, $k = 9$ percent and $g = 4$ percent, so the yield is 5 percent: $2.08 / 41.60 = 0.05$. That is not a coincidence and it is not rounding. It is the same identity read two ways.

A $3.50 dividend just paid, growing at 3 percent, required return 8 percent, has next year's dividend $3.61 and a price of $72.10. Implied yield is again $k - g$, 5 percent. Two different stocks, two different dividends, the same yield, because they share the same gap between $k$ and $g$.

That is also why you cannot pick a yield, a growth rate and a required return independently. Any two of them fix the third. A 5 percent yield and 4 percent growth are a 9 percent required return, whether you wanted them to be or not.

A growing perpetuity that grows as fast as it is discounted, or faster, has no finite value. The calculator refuses $k \le g$ rather than printing a huge or negative price. In words: you cannot assume a firm grows faster than the return investors require, forever, and still get a number that means anything.

A usable $g$ is a long-run rate, closer to nominal economic growth than to a firm's last five years. Using last year's 12 percent growth as $g$ is the usual way Gordon growth explodes, and it is the same error as using explicit-stage DCF growth as terminal growth. The DCF calculator exists so those two rates can differ. This page is the single-stage version, so there is no hiding place: $g$ is forever.

$D_0$ is the dividend just paid, not next year's, and not a trailing twelve-month figure you have not checked. Next year's is $D_0(1+g)$. Mixing them, putting next year's dividend in the $D_0$ box and then growing it again, overstates the price by a factor of $1+g$. On the default that is a 4 percent overstatement of $41.60, enough to notice and not enough to look absurd, which is why it survives review.

Firms that pay no dividend have a Gordon price of zero at any finite $g$ and $k$, which is the model saying it has nothing to capitalise. A two-stage DCF that forecasts a stretch of zero dividends and then a payout is the tool for that firm, not this one.

A property cap rate is this year's income over price, the yield piece. Add expected growth in NOI and you are writing $k = \text{cap} + g$, which is Gordon growth with rent instead of a dividend. The cap rate calculator stops at the yield. This page includes $g$. The algebra does not care whether the claim is a dividend or a net rent; it cares that the claim grows at a constant rate forever.

Required return $k$ is a cost of capital. The WACC calculator is one way to estimate it for a firm. A stock is levered, so $k$ here is a cost of equity, not WACC. Mixing those two is how a Gordon price gets discounted at the wrong rate.