Home / Glossary / Gordon Growth Model

Gordon Growth Model

Values a stock as next dividend over (required return − growth).

The dividend discount model assumes dividends grow at a constant rate g forever. It is intuitive and widely taught, but extremely sensitive to the spread between r and g — small changes swing the valuation wildly.

P₀ = D₁ / (r − g)      (requires r > g)

price = d1 / (r - g)