Stock Price Calculator to Calculate Purchase Price Based on Your Required Rate of Return

Stock Price Calculator Sign

This free online Stock Price Calculator will calculate the most you could pay for a stock and still earn your required rate of return.

The pricing method used by the calculator is based on the current dividend and the historical growth percentage.

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Stock Price Calculator

Calculate stock price based on the dividend growth model.

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Selected Data Record:

A Data Record is a set of calculator entries that are stored in your web browser's Local Storage. If a Data Record is currently selected in the "Data" tab, this line will list the name you gave to that data record. If no data record is selected, or you have no entries stored for this calculator, the line will display "None".

DataData recordData recordSelected data record: None
Div/share:Div per share:Dividend per share:Current dividend per share:

Current dividend per share:

Enter the current dividend per share using numeric characters only (0-9 and decimal point).

$
Grow rate:Growth rate:Stock growth rate:Stock growth rate:

Stock growth rate:

Enter the calculated growth rate. Please enter as a percentage without the percent sign (for 10%, enter 10). If you need to calculate the growth rate, tap/click the link on this line to open the stock growth rate calculator in a new window.

%
Req ROR:Required ROR:Required rate of return:Required rate of return:

Required rate of return:

Enter the required percentage rate of return without the percent sign. This is often arrived at by adding a percentage for risk premium to the T-Bill rate. Note that the required rate of return must be greater than the stock growth rate in order for the dividend growth model to be used for common stock valuation.

%
Max price:Maximum price:Maximum price per share:Maximum price per share:

Maximum price per share:

Based on your entries, this is the maximum price per share you could pay for the stock and still earn your required rate of return.

If you would like to save the current entries to the secure online database, tap or click on the Data tab, select "New Data Record", give the data record a name, then tap or click the Save button. To save changes to previously saved entries, simply tap the Save button. Please select and "Clear" any data records you no longer need.

Help and Tools

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Stock valuation using the dividend growth model.

What is Required Rate of Return

The common stock valuation formula used by this stock valuation calculator is based on the dividend growth model, which is just one of several stock valuation models used by investors to determine how much they should be willing to pay for various stocks.

The dividend growth model for common stock valuation assumes that dividends will be paid, and also assumes that dividends will grow at a constant pace for an indefinite period. Of course, neither of these assumptions rarely, if ever, occur in real life.

How to Calculate the Value of Stocks

To determine the value of common stock using the dividend growth model, you first determine the future dividend by multiplying the current dividend by the decimal equivalent of the growth percentage (dividend x (1 + growth rate)).

Lastly, the future dividend is divided by the difference between the decimal equivalent of the expected rate of return and the decimal equivalent of the growth percentage (future dividend ÷ (expected rate of return - growth rate)).

To illustrate how to calculate stock value using the dividend growth model formula, if a stock had a current dividend price of $0.56 and a growth rate of 1.300%, and your required rate of return was 7.200%, the following calculation indicates the most you would want to pay for this stock would be $9.61 per share.

Stock Price Calculation Using Dividend Growth Model
VariableFormulaResult
Future dividend =Dividend x (1 + (growth rate / 100))
Future dividend =0.56 x (1 + (1.3 / 100))
Future dividend =0.56 x (1 + (0.013))
Future dividend =0.56 x 1.013 =0.57
Rate difference =Required rate - Growth rate
Rate difference =0.072 - 0.013 =0.059
Stock price =Future dividend / Rate difference
Stock price =0.57 / 0.059 =$9.61

What is Required Rate of Return?

Unlike bonds, where the risk of principal loss is minimal, and dividends are paid on a fixed percentage, stocks come with an increased risk of losing your principal and stock dividends are never guaranteed, and the dividend per share is not fixed.

These added risks and uncertainties of investing in stocks explain why investors expect to earn a better return on investment on stocks than they do on bonds. In other words, more risk equates to a higher expected rate of return.

This difference between a low-risk expected rate of return (such as the T-Bill rate) and the higher expected rate of return that comes from increased risk is often referred to as the risk premium.

Risk premium can be thought of as the percentage that would need to be added to a risk-free return on investment to entice an investor into investing in the risky investment being offered. Once this percentage is added, the result is referred to as the required rate of return.

Adjust Calculator Width:

Move the slider to left and right to adjust the calculator width. Note that the Help and Tools panel will be hidden when the calculator is too wide to fit both on the screen. Moving the slider to the left will bring the instructions and tools panel back into view.

Also note that some calculators will reformat to accommodate the screen size as you make the calculator wider or narrower. If the calculator is narrow, columns of entry rows will be converted to a vertical entry form, whereas a wider calculator will display columns of entry rows, and the entry fields will be smaller in size ... since they will not need to be "thumb friendly".

Show/Hide Popup Keypads:

Select Show or Hide to show or hide the popup keypad icons located next to numeric entry fields. These are generally only needed for mobile devices that don't have decimal points in their numeric keypads. So if you are on a desktop, you may find the calculator to be more user-friendly and less cluttered without them.

Stick/Unstick Tools:

Select Stick or Unstick to stick or unstick the help and tools panel. Selecting "Stick" will keep the panel in view while scrolling the calculator vertically. If you find that annoying, select "Unstick" to keep the panel in a stationary position.

If the tools panel becomes "Unstuck" on its own, try clicking "Unstick" and then "Stick" to re-stick the panel.