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Gordon Growth Model (GGM) Dividend Valuation Calculator Formula Breakdown
Trailing twelve-month annualized dividend distribution per share.
Projected dividend distribution over the next 12 months: D₀ × (1 + g).
Investor's hurdle rate or cost of equity capital (typically 7% - 10%).
Sustainable long-term perpetual dividend growth rate (must be strictly lower than r).
How to Calculate Gordon Growth Model Step-by-Step
Extract annual dividend per share (D₀) and historical multi-year dividend growth trajectory.
Determine required investor rate of return (r) based on CAPM cost of equity or personal investment hurdle rate.
Estimate sustainable perpetual dividend growth rate (g), ensuring g < r to satisfy convergence rules.
Calculate next year's expected dividend: D₁ = D₀ × (1 + g).
Compute Intrinsic Fair Value = D₁ / (r - g) and benchmark upside/downside percentage against market price.
How to Interpret the Result
Frequently Asked Questions
What is the Gordon Growth Model?
Published by Myron J. Gordon and Eli Shapiro in 1956, the Gordon Growth Model calculates the intrinsic value of a stock by discounting an infinite series of constantly growing dividend payments back to present value.
What happens if dividend growth rate (g) is greater than discount rate (r)?
Mathematically, the denominator becomes negative or zero, causing the formula to fail. In economics, no company can grow faster than the economy indefinitely, so long-term growth (g) must always be below the cost of capital (r).
Which types of stocks are best suited for the Gordon Growth Model?
Mature, cash-generative 'Dividend Aristocrats' and utilities with multi-decade records of predictable, steady dividend expansion (such as Coca-Cola, Procter & Gamble, Johnson & Johnson, or Realty Income).
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