Dividend Discount Model (Gordon Growth) Calculator
The formula
How the Gordon Growth Model Values Mature Companies
The Gordon Growth Model (developed by Myron J. Gordon) values a company as the sum of all its infinite future cash dividend distributions discounted back to present value. It is the premier valuation methodology for mature, cash-rich dividend payers (such as Dividend Aristocrats, Consumer Staples, and Utilities) with predictable dividend growth track records.
Frequently asked questions
Can I use the Gordon Growth Model for tech stocks that pay no dividends?
Source & methodology
Gordon MJ. Dividends, Earnings, and Stock Prices (Rev Econ Stat, 1959); Damodaran on Valuation (Wiley).
Dividend Discount Model (Gordon Growth) explained: formula, worked example and honest limits
This page was written for one job: turning your own inputs into a defensible figure, with the working shown. Dividend Discount Model (Gordon Growth) is the kind of number people argue about from memory. This page ends that argument with arithmetic you can watch happen: enter your figures, get Intrinsic Fair Value per Share in real time, and see every substitution printed below.
Return and risk arrive as a package in Dividend Discount Model (Gordon Growth). A result of $149.10 means little until you ask what variance sits behind it, how it compares with the boring alternative (the companion tools above compute exactly that comparison), and whether the inputs assume the good scenario or the expected one.
What makes Dividend Discount Model (Gordon Growth) worth calculating is not precision but position: it tells you which side of a threshold you are on, and by how much. A rough figure that settles the direction beats an elaborate one that never commits.
Every figure in the prose is generated by the engine rather than written beside it — the worked example resolves to intrinsic Fair Value per Share = $149.10 on the default inputs, and the sensitivity section ranks the inputs that move the result — Required rate of return / discount rate first, at ≈46.3 % of the headline for a ten-percent error either way in that input. Work down the page and by the end you could re-derive the result in a spreadsheet from memory.
The Dividend Discount Model (Gordon Growth) formula, explained
Here is the complete model this tool runs — P₀ = D₁ / (r − g) = [ D₀ · (1 + g) ] / (r − g) — with each input explained below. If a competitor’s page gives you a different answer from the same inputs, this is the text that settles which of you is right.
Current annual dividend per share ($) (example value $4.20) is a money value, and money values are where rounding habits do the most damage — type the real figure, not a tidied one. Replace the example with the figure from your own records — the tool recomputes instantly and the printed steps follow your numbers.
Expected dividend annual growth rate (%) (example value 7) is a plain measured quantity — the unit shown in the label is the unit the formula expects. Rates are the most mis-transcribed input on any page like this; copy it from the document rather than retyping from memory.
Required rate of return / discount rate (%) (example value 10) is a measured number in the unit named by the label; the formula does not convert for you. Check the convention first: if the source says “6.5 % per year”, type 6.5 and let the formula do the rest.
Current market stock price ($) (example value $125.00) is a monetary input: one currency throughout, otherwise the result stops being comparable. Keep every money input in the same currency; mixing systems quietly corrupts the comparison.
Dividend Discount Model (Gordon Growth) on the example inputs: the complete substitution
Rather than describe the calculation, here it is end to end — every substitution in order, starting from the inputs above. Starting figures: Current annual dividend per share ($), Expected dividend annual growth rate (%), Required rate of return / discount rate (%), Current market stock price ($). Run to the end, the intrinsic Fair Value per Share resolves to $149.10 — 🟢 Undervalued / Buying Zone: Intrinsic value ($149.10) exceeds market price by 19.3% (Positive Margin of Safety). on the bands this tool uses.
- Next Year Dividend D₁ = D₀ ($4.20) × (1 + 6.5%) = $4.47
- Discount Rate Spread = r (9.5%) − g (6.5%) = 0.0300
- Intrinsic Stock Value = D₁ ($4.47) ÷ 0.0300 = $149.10
- Margin of Safety = [($149.10 − $125.00) ÷ $125.00] × 100 = +19.3%
Current Market Stock Price — $125.00. If your inputs change, this is usually the first companion figure to move.
Margin of Safety — 19.3%. Compare it against the main result of $149.10 before drawing conclusions.
Forward Dividend Yield — 3.58%. Read next to the headline, this is the figure that shows the shape of the trade-off.
10-Year Yield on Cost (YoC) — 6.30%. If your inputs change, this is usually the first companion figure to move.
Spread (Discount Rate − Growth) — 3.00%. If your inputs change, this is usually the first companion figure to move.
Re-running with your own figures is instant; re-running by hand once is the best way to know the tool is telling you the truth.
Scenario table: Dividend Discount Model (Gordon Growth) at ±10 % and ±20 % of the key input
The honest version of any estimate is a corridor, and this one is cheap to produce: Dividend Discount Model (Gordon Growth) was recomputed at 5 points along the dominant input, with every other field left untouched.
| Required rate of return / discount rate setting | Intrinsic Fair Value per Share |
|---|---|
| 80 % of the example value | $406.64 |
| 90 % of the example value | $218.20 |
| example inputs | $149.10 |
| 110 % of the example value | $113.24 |
| 120 % of the example value | $91.29 |
Across 5 settings of Required rate of return / discount rate, the result spans $91.29 to $406.64. A decision that only works at one row of this table is a decision waiting for an input to move. Reproduce it in the form above by editing Required rate of return / discount rate alone; the substitution steps will follow your figures exactly.
The levers behind Dividend Discount Model (Gordon Growth), ranked by effect
This list was computed for this specific engine just now: each numeric input was nudged ±10 % while every other field held its example value, and the intrinsic Fair Value per Share was recalculated from scratch. It is the fastest honest answer to “what matters most in Dividend Discount Model (Gordon Growth)?” — and it is specific to these defaults, because sensitivity moves with the starting point.
- Required rate of return / discount rate +10 % → Dividend Discount Model (Gordon Growth) = $113.24 · −10 % → $218.20 (the intrinsic Fair Value per Share shifts ≈46.3 %)
- Nudge Expected dividend annual growth rate by ±10 % and Dividend Discount Model (Gordon Growth) lands between $121.80 and $191.50 (sensitivity ≈28.4 %)
- Current annual dividend per share +10 % → Dividend Discount Model (Gordon Growth) = $164.01 · −10 % → $134.19 (the intrinsic Fair Value per Share shifts ≈10.0 %)
Required rate of return / discount rate is the dominant lever here: ten percent either way moves the result by about 46.3 %, from $113.24 to $218.20. Spend your verification effort there first, and treat Expected dividend annual growth rate as the second priority (≈28.4 % per ten percent). The rest of the inputs earn only a rounding-error of attention, and that asymmetry is the practical payoff of measuring rather than asserting.
Interpreting the Dividend Discount Model (Gordon Growth) verdict
A number on its own is trivia; a number against a range is intelligence. The default case lands in the “🟢 Undervalued / Buying Zone: Intrinsic value ($149.10) exceeds market price by 19.3% (Positive Margin of Safety).” band, and bands are deliberately wide because real situations overlap. The sensitivity list shows how far a modest input error moves you along that ladder: for Required rate of return / discount rate, ±10 % covers $113.24 to $218.20. The practical reading rules: compare against your own history before comparing against other people; treat band boundaries as zones, not walls — one point on the wrong side of a threshold rarely changes a real outcome; and when a companion output contradicts the headline, believe the pair.
Related measures answer related questions, and the distinctions matter: Dividend Discount Model (Gordon Growth) is the quantity, Intrinsic Fair Value per Share is this tool’s reading of it, and the decision that follows belongs to neither of them separately.
The errors that quietly break a Dividend Discount Model (Gordon Growth) figure
Treating the example inputs as a recommendation. They are a demonstration of the mechanism — a decision-grade Dividend Discount Model (Gordon Growth) begins the moment your own figures replace them.
Treating the example inputs as a recommendation. They are a demonstration of the mechanism — a decision-grade Dividend Discount Model (Gordon Growth) begins the moment your own figures replace them.
Attention is also misallocated between fields. Having measured this engine, we can say where it belongs: Required rate of return / discount rate first, everything else second.
Another is comparing across contexts: a Dividend Discount Model (Gordon Growth) computed with one set of conventions should never be lined up against a figure computed with another. Check the inputs behind both before ranking them.
A quick check for any Dividend Discount Model (Gordon Growth) figure
- Record the date and the inputs alongside the number so future-you knows what was assumed.
- Confirm the example values are plausible for your own situation before replacing them.
- Check Required rate of return / discount rate before anything else: it is the measured dominant input, ≈46.3 % of Dividend Discount Model (Gordon Growth) per ten percent.
- State, in one sentence, which convention each rate, unit or period in the form is using.
- Re-run the calculation with a ±10 % stress on the two most sensitive inputs.
- Run the ±10 % stress on the top two levers and check that your conclusion survives both.
How to use the Dividend Discount Model (Gordon Growth) tool properly
Using a calculator well sounds trivial, but the difference between a decision-grade figure and a throwaway one lives entirely in the routine. The routine for Dividend Discount Model (Gordon Growth) takes a minute to learn and applies to every input above.
Step 1 — one document, one pass. Open the statement, label or record that holds current annual dividend per share ($), expected dividend annual growth rate (%), required rate of return / discount rate (%), current market stock price ($) and transcribe straight into the form. Transcription from a single source removes the mismatch errors that appear when figures are assembled from three different places. The input you reach for first is usually the one you measured longest ago.
Step 2 — enter the conservative case first. Resist the flattering scenario. Type the inputs you would defend in front of a sceptical reader, read the Intrinsic Fair Value per Share ($149.10 for the example values), and note the verdict band. The inputs are the part of the work that nobody else can do for you.
Step 3 — measure what deserves measuring. The ranked levers above tell you where a careful figure pays off. Everything else can stay approximate, which is a licence to stop hunting for data you do not need. The test of a good estimate is not that it feels right but that it changes what you do.
Step 4 — compute a corridor, not a point. Three runs — worst, likely, best — turn Dividend Discount Model (Gordon Growth) from a snapshot into a range. Plan against the pessimistic end and treat the optimistic end as the upside story. The inputs are the part of the work that nobody else can do for you.
Step 5 — schedule the next run. In Investing & Markets the inputs drift quietly. Put a reminder a quarter out, re-enter the same fields, and read the change rather than the level. Write the assumptions in the same file as the result, and future arguments take minutes instead of meetings.
Who actually uses Dividend Discount Model (Gordon Growth) — and when
In Stocks & Equities the figure computed here is usually the first one somebody asks to see. Having it — with the formula behind it — changes your position in the conversation from participant to reference. When in doubt, prefer the boring input: the interesting one is usually the one you misread.
The companion outputs — Current Market Stock Price and Margin of Safety — exist for the second stage of that screen: the headline sizes the prize, while the companions describe the trade-off you are accepting to get it. Precision is a promise you make about your data; make sure your inputs can keep it.
Treat Dividend Discount Model (Gordon Growth) like a smoke alarm rather than a painting — its value is in being tested periodically, not in being admired once. Rounding early is the quietest way to introduce a permanent error.
People also ask about Dividend Discount Model (Gordon Growth)
What affects Dividend Discount Model (Gordon Growth) the most?
The short answer: Required rate of return / discount rate. The longer answer is the sensitivity table on this page, where every numeric input was probed by ten percent and the intrinsic Fair Value per Share recalculated — Required rate of return / discount rate moved it furthest, by roughly 46.3 % ($113.24 to $218.20).
Which matters more: expected dividend annual growth rate or required rate of return / discount rate?
By the numbers, Required rate of return / discount rate: a ten-percent change in it moves the result ≈46.3 %, versus ≈28.4 % for Expected dividend annual growth rate. Spend your measuring effort in that order — precision on the weaker lever buys almost nothing.
What is a typical Dividend Discount Model (Gordon Growth)?
On the worked example above Dividend Discount Model (Gordon Growth) comes out at $149.10. Treat that as one point on a distribution rather than a norm: the bands, the companion outputs and the sensitivity ranking tell you how wide the plausible range really is.
How do I calculate Dividend Discount Model (Gordon Growth) by hand?
Use the stated model — P₀ = D₁ / (r − g) = [ D₀ · (1 + g) ] / (r − g) — and substitute in the order the tool prints (it starts from Next Year Dividend D₁ = D₀ ($4.20) × (1 + 6.5%) = $4.47). On the example inputs the hand route lands on $149.10, exactly what the calculator shows. A spreadsheet reproduces it in two or three cells; doing it once by hand is what makes the automated answer trustworthy.
What happens to Dividend Discount Model (Gordon Growth) if required rate of return / discount rate changes by 10 %?
On these inputs a ±10 % change in required rate of return / discount rate takes Dividend Discount Model (Gordon Growth) to $113.24 against the $149.10 example — around 46.3 % of the headline. The same test on every other field is in the sensitivity section.
Is the Dividend Discount Model (Gordon Growth) result of $149.10 good or bad?
Good and bad are comparisons, so the honest test is three questions: where does your own Dividend Discount Model (Gordon Growth) sit against the $149.10 reference above, how far would a plausible input error move it (≈46.3 % per ten percent on Required rate of return / discount rate), and what does the alternative option compute to?
What is a good Dividend Discount Model (Gordon Growth)?
Markets give away free benchmarks: anything that beats the relevant index after costs earns the label "good", and this tool’s verdict band translates Dividend Discount Model (Gordon Growth) against experience ranges. Before that, check that the inputs are realistic — a great Dividend Discount Model (Gordon Growth) built on optimistic inputs is just a nicer-looking error.
Can I predict future returns with Dividend Discount Model (Gordon Growth)?
No tool predicts; Dividend Discount Model (Gordon Growth) computes implications. Use it to ask "if these inputs hold, what follows" — then stress the assumptions.
Can I use the Gordon Growth Model for tech stocks that pay no dividends?
No. For non-dividend-paying growth companies (like early-stage tech), use a Discounted Cash Flow (DCF) model based on Free Cash Flow to Firm (FCFF) or EV/EBITDA multiples.
Do I need an account to use this Dividend Discount Model (Gordon Growth) calculator?
No, and no data leaves the tab. The engine runs in the page itself, which is why the worked example, the bands and the sensitivity ranking all respond instantly to your keystrokes.
The vocabulary of Dividend Discount Model (Gordon Growth)
- Current Market Stock Price
- $125.00 for the Dividend Discount Model (Gordon Growth) worked case; it sits next to the main result because it carries context the headline leaves out.
- Margin of Safety
- 19.3% in the default Dividend Discount Model (Gordon Growth) calculation — one of the secondary figures an experienced reader checks before trusting the primary number.
- Forward Dividend Yield
- 3.58% for the Dividend Discount Model (Gordon Growth) worked case; it sits next to the main result because it carries context the headline leaves out.
- Intrinsic Fair Value per Share
- The primary output of this tool: $149.10 for the default inputs, computed exactly from P₀ = D₁ / (r − g) = [ D₀ · (1 + g) ] / (r − g).
- Worked example
- The step-by-step substitution printed above, so the arithmetic can be re-derived by hand or in a spreadsheet.
- Verdict band
- A named zone on the range of plausible results; the example inputs land in “🟢 Undervalued / Buying Zone: Intrinsic value ($149.10) exceeds market price by 19.3% (Positive Margin of Safety).”, and your inputs may not.
- Sensitivity (±10 %)
- How far the Dividend Discount Model (Gordon Growth) moves when a single input is nudged ten percent either way; the ranked list on this page is computed live from this engine.
Where the Dividend Discount Model (Gordon Growth) model comes from
Everything above runs on one stated formula, applied without hidden coefficients: P₀ = D₁ / (r − g) = [ D₀ · (1 + g) ] / (r − g). Source of record: Gordon MJ. Dividends, Earnings, and Stock Prices (Rev Econ Stat, 1959); Damodaran on Valuation (Wiley). Any other implementation of this model should return the same figure for the same inputs. If one does not, the difference is in its assumptions — which this page prints and that one probably does not.
Nothing here replaces a qualified professional, and nothing here is approximate either — the arithmetic is exact, and the honesty is in the inputs you supply. Nothing is smoothed, weighted or adjusted behind the scenes; where judgement enters, this page says so and names the input responsible.
Turning this Dividend Discount Model (Gordon Growth) into a decision
Save the number together with its inputs and today’s date; a Dividend Discount Model (Gordon Growth) figure without context is unusable the moment an input changes.
Whoever you are (people who need one trustworthy number before their next decision), the next step is the same: replace the example inputs with your own, note the date, and re-run whenever a figure moves. In Investing & Markets, a dated figure is a trend, and an undated one is a rumour.