Calculate fair value of Indonesian stocks based on expected dividends
Current stock price (check Stockbit, RTI, or your broker app)
Dividend Per Share last year. Check Stockbit → Company Profile → Dividends or annual report
Your expected return per year (typically 10-15% for Indonesian stocks)
Estimated dividend growth per year (look at historical dividends over last 5 years)
What Is the Dividend Discount Model?
The Dividend Discount Model (DDM) is a method for estimating the intrinsic value of a stock based on the present value of its future dividend payments. The model assumes that a stock is worth the sum of all future dividends, discounted back to their present value using a required rate of return. This approach is particularly relevant for the Indonesian stock market (IDX), where many blue-chip companies like Bank BCA (BBCA), Bank BRI (BBRI), and Telkom (TLKM) are known for consistent dividend payments. For income-focused investors, the DDM provides a disciplined framework for determining whether a dividend-paying stock is fairly priced, undervalued, or overvalued.
The Gordon Growth Model (the most common DDM variant) calculates intrinsic value as: Value = D1 / (r - g), where D1 is the expected dividend per share next year, r is the required rate of return (discount rate), and g is the expected constant dividend growth rate. D1 is typically estimated as this year's dividend × (1 + g). The formula requires that the growth rate (g) be less than the discount rate (r). For example, with a current dividend of Rp 200, a growth rate of 5%, and a required return of 12%, the estimated value is: Rp 210 / (0.12 - 0.05) = Rp 3,000. The model works best for companies with a long history of stable, growing dividends.
Enter the current annual dividend per share, the expected annual dividend growth rate, and your required rate of return. For Indonesian stocks, you can find dividend history on IDX.co.id, Stockbit, or RTI Business. The expected growth rate can be estimated from the historical average of dividend increases over the past 5-10 years. Your required return should reflect the opportunity cost of your capital and the risk of the investment — typically 10-15% for Indonesian equities. The calculator will output the estimated fair value per share to compare with the current market price.
Bank BCA (BBCA) paid a dividend of Rp 280 per share in 2023 and has grown dividends at roughly 10% per year over the past decade. Using a required return of 13% and a growth rate of 10%, the DDM value would be: Rp 308 / (0.13 - 0.10) = Rp 10,267 per share. If BBCA trades at Rp 9,500, the stock appears slightly undervalued by this metric. If it trades at Rp 12,000, it appears overvalued. Note that BBCA commands a premium due to its dominant market position and exceptional asset quality, which may justify a price above the basic DDM value.
The DDM is highly sensitive to the growth rate and discount rate inputs — small changes can dramatically alter the result. Test multiple scenarios using conservative, moderate, and optimistic assumptions. Only apply DDM to companies with at least 5-10 years of consistent dividend payments. High-growth companies that reinvest most profits (low payout ratios) are poorly suited for DDM analysis. For Indonesian stocks, account for the 10% dividend withholding tax when calculating your actual yield. Consider using a two-stage DDM for companies expected to grow faster in the near term and slower later.