Gordon Growth Model

Same as DDM: P = D₁ / (k − g). Single-stage constant-growth model.

Inputs

Result

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How to use this calculator

  • Enter most recent dividend D₀.
  • Required return k (CAPM).
  • Long-term growth rate g.

About this calculator

Gordon Growth Model is the same single-stage DDM, formulated by Myron Gordon (1959). Take current dividend, grow it 1 year forward, discount the perpetuity at k. Useful for back-of-envelope intrinsic-value checks of mature dividend stocks. Compare to current market price: if intrinsic > market → undervalued (buy candidate).

Frequently asked

Same as DDM?+
Yes — Gordon Growth Model is the constant-growth variant of DDM. Names interchangeable.
g vs. dividend payout ratio?+
Sustainable g = ROE × (1 − payout ratio). Higher retention + profitable → faster growth.
Use for whole stock market?+
Yes — valuing S&P 500 at any point. Implied long-term return = D/P + g.
Limitations?+
Constant growth assumption. Sensitivity to k−g. Doesn't handle cycles or company-specific events.
Multi-stage extension?+
H-model (linear growth decline) or three-stage DDM. More realistic for high-growth → mature transitions.

Related calculators

Dividend Discount Model (DDM)
P = D₁ / (r − g). Stock price = next dividend / (required return − growth rate).
WACC Calculator
WACC = (E/V)·Re + (D/V)·Rd·(1−T). Blended cost of capital weighted by debt + equity.
Free Cash Flow (FCF)
FCF = EBIT(1−T) + D&A − CapEx − ΔNWC. Cash available to all capital providers.
EBITDA Calculator
EBITDA = Net Income + Interest + Tax + D&A. Operating earnings before financing + non-cash items.
Return on Equity (ROE)
ROE = Net Income / Avg Shareholders' Equity. Profitability per dollar of equity.
Return on Assets (ROA)
ROA = Net Income / Avg Total Assets. Profitability per dollar of all assets.

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