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H-Model

Two-stage DDM with linear growth decay from high to stable rate.

The H-Model is a two-stage dividend discount model where the growth rate declines linearly from an initial high rate to a long-term sustainable rate. Unlike abrupt two-stage models, the H-Model produces smoother transitions. The parameter H equals half the high-growth period, representing the midpoint of growth decay.

Formula
P=D0(1+gL)r−gL+D0×H×(gS−gL)r−gLP = \frac{D_0(1+g_L)}{r-g_L} + \frac{D_0 \times H \times (g_S - g_L)}{r - g_L}
Where
PP=Intrinsic share price
D0D_0=Current annual dividend
gLg_L=Long-term stable growth rate
gSg_S=Short-term high growth rate
HH=Half-life of high-growth period
rr=Required rate of return
Related Terms

Gordon Growth Model

Single-stage DDM assuming constant dividend growth in perpetuity.

Dividend Discount Model (DDM)

Values a stock as the present value of future dividends.

Cost of Equity

The return shareholders require to compensate for investment risk.