Gordon Growth Model Calculator

How to use the Gordon Growth Model Calculator

1. 1Enter the dividend, the required return and the growth rate.
2. 2Pick the units or options from the menus if the Gordon growth model value tool offers them.
3. 3Read the Gordon growth model value in the large result box.
4. 4Look at the extra rows for related figures.
5. 5Press Copy result to keep the answer.

When you need the Gordon growth model value

Investors use it for steady dividend payers such as utilities, and students use it to see how growth and risk drive price.

The result is very sensitive to the gap between r and g. A gap of 5 points gives 20 times the dividend, and a gap of 2 points gives 50 times it.

How the Gordon growth model value is worked out

Value = D1 ÷ (r − g), where D1 is next year's dividend, r the required return and g the growth rate. If you know the dividend just paid, D1 = D0 × (1 + g). A next-year dividend of 2 with an 8% required return and 3% growth gives 2 ÷ 0.05 = 40 per share. If 2 is the dividend just paid, D1 is 2.06 and the value is 41.20.

Every answer on this page comes from that one rule, so you can check any result by hand with a calculator. The figures shown underneath, such as other units, are conversions of the same answer.

• D0 or D1 input
• Implied yield
• Clear error when growth is too high

Mistakes to avoid with Gordon growth model value

The model needs growth below the required return and a company that really pays growing dividends. It does not suit firms with no dividend or very uneven growth.

On phone and computer

On a phone, type into the boxes one after another and read the Gordon growth model value underneath; Copy result puts it on the clipboard for a message or a note. On a computer the inputs sit on the left and the answer on the right, so you can change one figure and watch the Gordon growth model value move. The gordon growth model calculator works the same on both.

Checking your Gordon growth model value by hand

A good habit is to test the gordon growth model calculator with a case you already know. A next-year dividend of 2 with an 8% required return and 3% growth gives 2 ÷ 0.05 = 40 per share. If 2 is the dividend just paid, D1 is 2.06 and the value is 41.20.

If your own figures give a surprising answer, repeat the working yourself: Value = D1 ÷ (r − g), where D1 is next year's dividend, r the required return and g the growth rate. If you know the dividend just paid, D1 = D0 × (1 + g). Small differences usually come from rounding, from mixing units, or from a typing slip in one of the inputs. The model needs a growth rate and a required return, so check both. Estimate the discount rate with the CAPM Calculator, look at income with the Dividend Yield Calculator, and compare price to profit with the P/E Ratio Calculator.

Features

• Gap between r and g drives the result
• Needs steady dividends
• Growth cannot exceed return
• Clear messages when the Gordon growth model value inputs make no sense
• Copy the result with one tap
• Private: nothing is uploaded

Frequently asked questions