In this section, we will study the 2-stage growth model (also known as "differential growth model"). The idea is that rapidly growing companies are expected to experience an initial finite period of high growth, but later their growth will slow down.

As its name sounds, there are two stages in this model: the first stage is a limited number (say N) of periods of high dividend growth rate, g1; the second is an infinite number period with a lower dividend growth rate, g2. The first dividend is denoted by D1, the first dividend in the second stage is D（n+1）, and the discount rate per period is r.

Below is an interactive graph of a two-stage dividend growth model. Here the first stage include 2 years, and the second stage is hereafter. Let's assume dividend on zero point is paid yesterday so it doesn't count into these two stages. The dividend paid yesterday, denoted by D0, is $2 and painted as the red bar. The following two yellow bars are the dividends paid in year 1 and 2, the first stage. The rest purples bars represent all the dividends paid in the second stage. You can play the value of g1 and g2 to see what will happen to the stream of dividends.