Gordon Growth Model Calculator

Gordon Growth Model values stocks based on perpetual dividend growth assumption. Formula: P = D₁ / (r - g), where D₁ is next year's dividend, r is required return, g is dividend growth rate. Best applied to mature, stable dividend-paying companies (utilities, consumer staples). Breaks down for high-growth companies (where g approaches r).

Example: company pays 2/share dividend, grows 5% annually, required return 9%. Next year dividend = 2.10. Fair value = 2.10 / (0.09 - 0.05) = 52.50. Current dividend yield = 2 / 52.50 = 3.81%. If trading at 40, undervalued by 30%. If trading at 70, overvalued by 33%.

Critical sensitivity: small changes in growth or required return dramatically change valuation. Same 2 dividend at 5% vs 6% growth: 52.50 vs 70.67 (35% difference). At 9% vs 8% required return: 52.50 vs 70 (33% difference). Gordon is commonly used for sense-checking rather than as a sole valuation method, with DCF and multiples providing cross-checks for triangulation. Required return must exceed growth rate or formula breaks (negative or infinite values).

A worked example

With the defaults: current annual dividend of 2, dividend growth rate of 5%, required return of 9%. The tool returns 52.50. You can adjust any input and the result updates as you type — no submit button, no reload. That's the real power here: seeing how sensitive the output is to one or two assumptions.

What moves the number most

The result responds to Current Annual Dividend, Dividend Growth Rate %, and Required Return %. The dividend scales the value proportionally, but the growth rate and required return dominate: because the price divides by the spread between them (r − g), a small change in either can swing the valuation sharply. The narrower that spread, the more extreme the effect. Try nudging the growth rate and required return a point at a time to see it.

The formula behind this

Gordon Growth Model: fair price = next year's dividend / (required return - growth rate). Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.

What this doesn't capture

This is a simplified model that holds its assumptions constant. Real outcomes vary with market conditions, costs, taxes, and timing, so the figure is best read as one scenario rather than a forecast.