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Gordon Growth Model

Single-stage DDM assuming constant dividend growth in perpetuity.

The Gordon Growth Model (GGM) is the simplest form of the dividend discount model. It values a stock as next year's dividend divided by the difference between the required return and the constant growth rate. The model is most appropriate for mature, stable companies with predictable dividend policies. It produces NaN when growth equals or exceeds the required return.

Formula
P=D0×(1+g)r−gP = \frac{D_0 \times (1 + g)}{r - g}
Where
PP=Intrinsic share price
D0D_0=Current annual dividend
gg=Constant dividend growth rate
rr=Required rate of return
Related Terms

Dividend Discount Model (DDM)

Values a stock as the present value of future dividends.

H-Model

Two-stage DDM with linear growth decay from high to stable rate.

Cost of Equity

The return shareholders require to compensate for investment risk.