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Stock Pricing Based on the Dividend Discount Model

One way to price stocks is to use the dividend discount model(DDM). DDM only considers a stock's dividends, its dividend changing rate and interest rate when deriving its price.

Calculator

Quarterly dividend:
dollar(s) 
Dividend changing rate quarterly:
 % 
Interest rate:
%

Math Formula

The DDM has the following math formula:

The Higher the Dividends, the Higher the Stock Price

Assume the quarterly interest rate is fixed at 0.25% and the stock pays quarterly dividends. Dividend has a positive linear relationship with stock price based on DDM.

The Higher the Interest Rate, the Lower the Stock Price

Assume the quarterly dividends is fixed at 1$ and the stock pays quarterly dividends. Interest rate has a inverse relationship with stock price and the interest rate can't be 0, because otherwise the stock price will be infinity and the interest rate can't be negative which will result in a negative stock price.

The Faster the Dividend Grows, the Higher the Stock Price

Assume the quarterly interest rate is fixed at 0.25% and the stock pays quarterly dividends. Dividends can not grow at a rate that is higher than the interest rate, because otherwise investors can just borrow money and buy the stock and push its price up indefinitely
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