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). Use Gordon for sense-checking, not as sole valuation method. Pair with DCF, multiples for triangulation. Required return must exceed growth rate or formula breaks (negative or infinite values).

A worked example

Try 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 rate and the time horizon usually dominate — compounding means a small change in either reshapes the final figure more than a similar shift in contribution size. Test this by doubling one input at a time.

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.

Using this well

What this doesn't capture

Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. The number represents one scenario rather than a forecast.