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Gordon Growth Model (DDM)

Estimate the intrinsic value of a stock using the Dividend Discount Model for a stock with dividends growing at a constant rate forever.

The most recent annual dividend paid per share
Expected perpetual annual dividend growth rate
Your minimum acceptable annual return (must exceed growth rate)

Results

Next Year Dividend (D₁)$0.00
Intrinsic Value per Share$0.00

📖What is it?

The Gordon Growth Model (GGM), also called the constant-growth Dividend Discount Model, values a stock as the present value of all future dividends growing at a constant rate in perpetuity. The formula is P₀ = D₁ / (r − g), where D₁ is the next dividend, r is the required return, and g is the constant growth rate. It only works when r > g.

🎯How to use

Enter the current dividend (Dâ‚€), the expected perpetual growth rate (g), and your required rate of return (r). Ensure r > g, or the model produces nonsensical results. The calculator outputs the next dividend and the estimated intrinsic share value.

💡Example scenario

A stock just paid a $2.00 dividend. You expect dividends to grow at 4% forever and require a 10% return. D₁ = $2.00 × 1.04 = $2.08. Intrinsic value = $2.08 / (0.10 − 0.04) = $34.67.

🏆Pro tip

The GGM is highly sensitive to the growth rate assumption. A small change in g can dramatically alter the valuation. The model is best suited for mature, stable-dividend companies. It fails when g ≥ r, producing infinite or negative values.