Gordon Growth Model Calculator

The Gordon Growth Model — the constant-growth dividend discount model — values a stock as the present value of dividends growing forever at a steady rate. One formula, three inputs, and the cleanest intuition in equity valuation.

The formula

Intrinsic Value = D₁ ÷ (r − g)

D₁ is next year’s dividend (this year’s × (1+g)), r the required return, g the perpetual growth rate. The formula only works when r > g — a company can’t outgrow its discount rate forever, and the calculator enforces this.

Worked example

Sensitivity is the model’s famous personality: move g to 5% and the value jumps to $80 — a fifth of the answer from one point of forever-growth. That sensitivity is a feature if you respect it (test ranges, not points) and a trap if you don’t.

When to use it — and not

Best for mature, stable dividend payers (utilities, consumer staples); useless for non-payers and unstable growers, where a full DCF with explicit forecast years does the job. The required return typically comes from CAPM or your WACC work. In practice the model earns its keep as the terminal-value engine inside bigger DCFs — the perpetuity at the end of almost every valuation you’ll ever see is Gordon wearing a suit.

FAQ

What is the Gordon Growth Model formula? Intrinsic value = next year’s dividend ÷ (required return − growth rate), valid only when the required return exceeds the growth rate.

Why must r be greater than g? A perpetual growth rate at or above the discount rate implies infinite value — mathematically undefined and economically impossible.

What growth rate should I use? Something sustainable forever — typically at or below long-run GDP/inflation growth (2–4%). Using recent high growth as a forever rate is the model’s classic abuse.

Does it work for stocks that pay no dividend? No — use a DCF on free cash flows instead. Gordon requires an actual growing dividend stream.