# Dividend Discount Model

`D18-F02-A02` · Fundamental Analysis and Valuation → Intrinsic Valuation · archetype `record-transform` · difficulty 3/5 · verification **verified**

Full page: https://docs.thefintechbuilder.com/fundamental-analysis-and-valuation/intrinsic-valuation/dividend-discount-model/
Agent skill: `npx skills add IslamBaraka90/Fintech-Algorithms-Library` — https://docs.thefintechbuilder.com/guides/agent-skill/

## Install and import

```bash
npm install fintech-algorithms
```

```ts
import { dividendDiscountModel } from "fintech-algorithms/fundamental-analysis-and-valuation/intrinsic-valuation/dividend-discount-model";
```

## Signature

```ts
dividendDiscountModel(data)
```

Discounts an explicit per-share dividend forecast at the cost of equity and adds a growing-perpetuity terminal value built from the final forecast dividend, returning intrinsic value per share.

## Parameters

| Name | Type | Required | Notes |
| --- | --- | --- | --- |
| `data` | `{ dividends: number[]; cost_of_equity: number; terminal_growth: number }` | yes | `dividends` is the explicit per-share forecast, one finite nonnegative number per period, discounted at periods 1 through n. `cost_of_equity` is the discount rate and `terminal_growth` grows the last `dividends` entry into the terminal dividend. Other keys in the record are not read. |

## Returns

`{ state: string; method: string; schedule: { period: number; dividend: number; discount_factor: number; present_value: number }[]; pv_explicit_dividends: number; terminal_dividend: number; terminal_value: number; terminal_discount_factor: number; pv_terminal_value: number; terminal_value_share: number; intrinsic_value_per_share: number }`

A `schedule` row per forecast period with its `discount_factor` and `present_value`, then `pv_explicit_dividends`, the terminal block (`terminal_dividend`, `terminal_value`, `terminal_discount_factor`, `pv_terminal_value`) and `intrinsic_value_per_share`, which is the sum of the explicit and terminal present values. `terminal_value_share` is the terminal share of that sum, emitted as 0 when the sum is 0.

## Errors

- When `data` is absent, an array, or not an object — throws Error
- When `dividends` is not an array holding at least one finite number — throws Error
- When any entry of `dividends` is negative — throws Error
- When `cost_of_equity` is not strictly between 0 and 1 — throws Error
- When `terminal_growth` is at or below -1, or at or above `cost_of_equity` — throws Error

## Complexity

Time `O(n)`, space `O(n)`.

## Worked example

Captured by running this function on the input its own test provides. Real output of real code — but not asserted against a published figure.

### Input

`data`:

```json
{
  "valuation_date": "2026-08-04",
  "currency": "USD",
  "dividends": [2, 2.2, 2.42, 2.6, 2.75],
  "cost_of_equity": 0.1,
  "terminal_growth": 0.04
}
```

### Call

```ts
dividendDiscountModel(data)
```

### Returns

object with 10 fields: state, method, schedule, pv_explicit_dividends, terminal_dividend, terminal_value, terminal_discount_factor, pv_terminal_value, …

```json
{
  "state": "valued",
  "method": "multi-stage-dividend-discount",
  "schedule": [
    {
      "period": 1,
      "dividend": 2,
      "discount_factor": 0.9090909090909091,
      "present_value": 1.8181818181818181
    },
    {
      "period": 2,
      "dividend": 2.2,
      "discount_factor": 0.8264462809917354,
      "present_value": 1.8181818181818181
    },
    {
      "period": 3,
      "dividend": 2.42,
      "discount_factor": 0.7513148009015775,
      "present_value": 1.8181818181818177
    }
  ],
  "pv_explicit_dividends": 8.937914076907314,
  "terminal_dividend": 2.8600000000000003,
  "terminal_value": 47.66666666666667,
  "terminal_discount_factor": 0.6209213230591549,
  "pv_terminal_value": 29.59724973248639,
  "terminal_value_share": 0.7680582306301622,
  "intrinsic_value_per_share": 38.5351638093937
}
```

## Other exports

`calculate`, `freeCashFlowDcf`, `gordonGrowthModel`, `residualIncomeModel`, `economicValueAdded`. Every module additionally exports `run` as an alias of its primary
function, and a `meta` object carrying its catalog id, domain, family, shape and article URL.

## Verification and provenance

Tier: **verified** (via D).

The worked example below is the figure published in this algorithm's article, replayed and asserted by the test suite on every build. The arithmetic cannot drift without the build failing.

Both tiers guarantee the signature. Full explanation: https://docs.thefintechbuilder.com/guides/verification/

Generated from the docs.json payload shipped inside fintech-algorithms@0.13.0.
The signature and parameter list are checked against the compiled implementation at build time,
so a description that contradicts the code fails the build rather than reaching this file.

## Links

- Article (how it works, step by step): https://thefintechbuilder.com/fundamental-analysis-and-valuation/intrinsic-valuation/dividend-discount-model/
- Implementation source: https://github.com/IslamBaraka90/Fintech-Algorithms-Library/blob/main/src/fundamental-analysis-and-valuation/intrinsic-valuation/dividend-discount-model/impl.ts
- Package on npm: https://www.npmjs.com/package/fintech-algorithms
- Domain index for agents: https://docs.thefintechbuilder.com/fundamental-analysis-and-valuation/llms.txt