Gordon Growth Model calculator to calculate intrinsic stock value, required return, dividend growth rate, or current dividend using the Gordon-Shapiro dividend discount model. Use this dividend discount model calculator for stable dividend stocks.
Gordon Growth Model FAQ
What is the Gordon Growth Model?
The Gordon Growth Model is a constant-growth version of the Dividend Discount Model (DDM). It values a stock as the next expected dividend divided by the difference between the required return and the dividend growth rate.
How do you calculate intrinsic stock value with the Gordon Growth Model?
You first estimate the next expected dividend, then divide it by the gap between the required return and the dividend growth rate. The standard formula is P = D1 / (r - g).
What is a dividend discount model calculator?
A dividend discount model calculator estimates the value of a stock from expected dividends and a required return. The Gordon model is the most common single-stage DDM because it assumes constant dividend growth forever.
When should I use the Gordon Growth Model?
Use it for mature dividend-paying companies with relatively stable long-term dividend growth. It is less suitable for firms with no dividends, highly unstable payouts, or short-term hyper-growth assumptions.
Why must the required return be higher than the growth rate?
Because the formula uses r - g in the denominator. If the growth rate is equal to or higher than the required return, the valuation breaks down and the result becomes unrealistic.
Does this calculator use the current dividend or next year’s dividend?
This calculator uses the current dividend per share (D₀) and converts it into the next expected dividend (D₁) by applying the growth rate: D₁ = D₀ × (1 + g).
Is the Gordon model the same as a DDM calculator?
It is a specific type of DDM calculator. The Gordon model is the single-stage constant-growth version of the Dividend Discount Model.
What growth rate should I use in the Gordon Growth Model?
Use a long-term sustainable dividend growth rate, not a short-term spike. The model works best when the assumed growth rate is realistic, stable, and clearly below the required return.
When the Gordon Model Works Best
The Gordon model works best for stable dividend stocks where management follows a fairly predictable payout policy and long-run growth is modest. It is most useful when you want a quick estimate of intrinsic stock value from dividends rather than a full multi-stage valuation.
It becomes less reliable when dividends are irregular, the company does not pay dividends, or the assumed growth rate is too close to the required return. In those cases, small changes in assumptions can produce very large swings in estimated value.
Example
If the current dividend is 2.00, the dividend growth rate is 4%, and the required return is 9%, then the next dividend is 2.08 and the value estimate is 2.08 / (0.09 - 0.04) = 41.60.
That means the Gordon model estimates an intrinsic stock value of about 41.60 per share under those assumptions.
