Stock Price – Variable Growth Model Demo: Value Stocks with Multi-Stage Dividend Growth

The Stock Price – Variable Growth Model tool estimates a stock’s current fair value when dividends are expected to grow at different rates over multiple periods. It extends the traditional Gordon Growth (Dividend Discount) Model by allowing for varying growth rates before the stock reaches a constant long-term growth phase. This makes it especially useful for companies that are expected to grow rapidly at first and then stabilize over time.

What the Variable Growth Model Tool Does

Instead of assuming a single constant growth rate, this calculator lets you define several distinct growth stages. You can specify:

• Initial Dividend (D₀): The most recent dividend the company paid,
• Expected Return (r): Your required rate of return as an investor,
• Growth Rates (g₁, g₂, … gₙ): Different annual dividend growth rates for specific periods.

The tool then:

• Projects year-by-year dividends for each growth period,
• Discounts those dividends back to the present using the required return r,
• Calculates a terminal value once the dividend growth becomes constant,
• Combines all discounted cash flows into a single present value your estimated fair stock price today.

This framework helps you compare your model-based valuation to the current market price and decide whether a stock appears overvalued or undervalued under your assumptions.

How It Works

The model first projects future dividends based on user-defined growth rates. For each year t, the dividend is calculated as:

Dₜ = Dₜ₋₁ × (1 + gₜ)

where gₜ may differ from year to year in the early stages.

The present value of projected dividends and the terminal value are then discounted back using your required return r:

P₀ = Σ (Dₜ / (1 + r)ᵗ) + (Pₙ / (1 + r)ⁿ)

Here:

• P₀ is today’s estimated stock price,
• Dₜ are the future dividends in each year t,
• Pₙ is the terminal value at the end of the variable-growth phase, when dividends are assumed to grow at a constant rate thereafter.

The tool displays:

• Year-by-year dividend projections,
• Cash flows including dividends and final terminal price,
• The total present value representing the model’s estimated fair price.

Faster early growth leads to higher valuations, while slower growth or a higher required return reduces today’s price estimate.

Applications

The Variable Growth Model tool is ideal for:

• Equity investors evaluating companies with distinct growth phases (e.g., high-growth early years followed by maturity),
• Analysts and portfolio managers performing multi-stage dividend discount valuations,
• Students and educators learning how multi-stage DDM extends the basic Gordon Growth framework,
• Financial planners illustrating how changing growth expectations impact intrinsic stock value.

It is particularly useful for growth or transition-stage companies where a simple constant-growth assumption is too simplistic.

Why Move from Excel to the Web?

Multi-stage dividend models are often built in spreadsheets, but sharing and maintaining them can be cumbersome. Converting the model into a web application with SpreadsheetWeb offers:

• Browser-based access without requiring Excel,
• A single, controlled version of the valuation logic for all users,
• Interactive inputs and instant recalculation of projections and present value,
• Easy embedding into websites, investor portals, or training platforms.

This not only improves usability but also reduces version-control issues and streamlines collaboration.

Interactive Demo

Use the live Stock Price – Variable Growth Model Demo to:

• Enter the initial dividend (D₀) and required return (r),
• Define multiple short-term growth rates for the early years,
• Set a long-term constant growth rate after the variable-growth phase,
• Review year-by-year dividend projections and the terminal value,
• See the total present value that represents today’s estimated stock price.

Experiment with different growth paths and required returns to see how sensitive the valuation is to your assumptions.

FAQ

What does the Variable Growth Model tool do?
It estimates a stock’s fair value when dividends are expected to grow at different rates across multiple periods before settling into a constant long-term growth rate.

How is this different from the Constant Growth Model?
The Constant Growth Model assumes a single growth rate forever, while the Variable Growth Model allows for multiple growth phases (e.g., high growth first, then stable growth), making it more flexible for real-world companies.

What inputs do I need?
You provide the most recent dividend (D₀), your required return (r), and a sequence of growth rates for selected years, plus a long-term constant growth rate.

How are dividends and price calculated?
Future dividends are projected with Dₜ = Dₜ₋₁ × (1 + gₜ), and then each dividend plus the terminal value is discounted back to the present using P₀ = Σ (Dₜ / (1 + r)ᵗ) + (Pₙ / (1 + r)ⁿ).

Who should use this calculator?
Investors, analysts, students, and finance professionals who want to value dividend-paying stocks with multiple growth stages, rather than assuming a single constant growth rate.

Can I embed this calculator on my website?
Yes. With SpreadsheetWeb you can embed calculators and models directly into your website or share them as secure standalone web applications with your own branding.

Disclaimer: This calculator is provided for informational and educational purposes only. The results are based on user-entered data and standard formulas and do not constitute financial, investment, or trading advice. Calculations are illustrative and may not reflect actual market conditions, transaction costs, taxes, or other investment considerations. Users should verify all results independently and consult a qualified financial professional before making any investment decisions.