DDMMyron J. Gordon (1956) / Fuller & Hsia (1984)
DDM (Dividend Discount Model - Gordon & H-Model) Calculator
DDM values common stock based on the present value of all expected future cash dividends, making it the industry standard for dividend-paying blue chips and financial institutions.
Calculator Inputs
Cash Dividend Paid Per Share
Theoretical Foundation & Equation
The Gordon Growth Model assumes constant perpetual dividend growth (g). The Fuller-Hsia H-Model provides higher realism by modeling an initial high growth rate (gS) that linearly transitions to long-term growth (gL) over a half-life period (H).
Core Intrinsic Formula
Gordon = D0 × (1 + g) / (ke - g) | H-Model = [D0 × (1 + gL) / (ke - gL)] + [D0 × H × (gS - gL) / (ke - gL)]
Variable Definitions & Disclosure Guidance
| Symbol | Variable Name | Description | Filing Source Guide |
|---|---|---|---|
| D_0 | Current Dividend Per Share | Trailing Twelve Months cash dividend per share | Cash Flow Statement: Dividends Paid / Shares |
| k_e | Cost of Equity | Required rate of return for equity holders (must strictly exceed growth rate) | CAPM or long-term hurdle rate (8-10%) |
| g / g_L | Sustainable Long-Term Growth | Perpetual stable dividend growth rate aligned with GDP growth (2-4%) | Long-term economic outlook |
| g_S / H | Initial Growth & Half-Life (H-Model) | Initial short-term growth rate (gS) and half of total transition duration (H years) | Medium-term corporate payout expansion plan |
Financial Intuition: From a cash-in-hand perspective, equity is worth exactly what it returns to shareholders over time via dividends.
Step-by-Step Worked Example
Stable financial holding company with expanding shareholder distributions.
Sample Financial Filing Inputs
Dividend Per Share (D0)
$2.00
TTM Dividend
Cost of Equity (ke)
9.0%
Required Return
Long-Term Growth (gL)
4.0%
Perpetual Growth
Initial Growth (gS) / Half-Life (H)
10.0% / 5 Years
H-Model Transition
Calculation Steps
Step 1: Gordon Constant Growth Valuation$41.60
$2.00 × (1 + 0.04) / (0.09 - 0.04) = $2.08 / 0.05 = $41.60
Step 2: H-Model Linear Transition Valuation$53.60
Base $41.60 + [$2.00 × 5 × (0.10 - 0.04) / (0.09 - 0.04)] = $41.60 + $12.00 = $53.60
Example Conclusion & Interpretation
Gordon perpetual growth implies $41.60 fair value, while H-Model incorporating near-term dividend expansion yields $53.60.
Suitability Checklist & Limitations
Best Suited For
- •Commercial banks, insurance carriers, financial holding companies, REITs, and regulated utilities
- •Dividend Aristocrats with decades of consistent payout records
Not Suitable For
- •Non-dividend paying tech stocks or early-stage growth companies reinvesting 100% of profits
Frequently Asked Questions
Financial institutions use debt and deposits as operational raw materials, rendering standard FCFF / WACC undefined. Dividends represent pure distributable cash flow to equity owners.
Primary Citations & Source Documentation
Myron J. Gordon / Fuller & Hsia (1984)
Dividends, Earnings, and Stock Prices (1959) / A Simplified Common Stock Valuation Model (1984, CFA Institute)
View Source / Filing ReferenceLegal Caveat
- Avoid using non-recurring special dividends as base D0.