Gordon Growth Model


A formula to calculate the constant dividend supported growth rate of mature companies with a low beta and low growth rate. The model operates on the assumption that dividends will increase infinitely and will outpace the stock price's growth, and is only an idealized calculation for select large-cap companies in stable sectors.

D = Dividend per share forecast for next year; R = Required rate of return for the investor; G = Growth rate in dividends.

Stock Value = D / (R - G)

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You may want to try and use the gordon growth model to find new ways for your company to make profits.

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The Gordon Growth Model was great for us and at diner I told everyone that it was something we used very often.

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The company, which had been around for decades and was an established leader in its industry, experienced little flucuation in its stock price, but the Gordon Growth Model indicated a steady return from its dividends.

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