Gordon Growth Dividend Model Calculator
The Gordon growth model values a share of stock as the present value of an infinite stream of dividends that grow at a constant rate forever. It is the simplest dividend discount model and is best suited to stable, mature companies with predictable payouts. This calculator takes next year's expected dividend, your required rate of return, and the perpetual dividend growth rate, then returns the intrinsic value per share along with the implied dividend yield and capital gains yield components. The growth and return rates are user inputs you should set from your own forecast.
Gordon growth model formula
Intrinsic value P = D1 / (r - g)
Dividend yield = D1 / P (equals r - g)
Capital gains yield = g
D1 is next year's dividend, r is the required rate of return, and g is the constant perpetual growth rate. The required return r equals the dividend yield plus the capital gains yield, so r = D1/P + g.
Using the constant-growth model
- The model is named after economist Myron J. Gordon, who popularised it in 1959.
- It requires the required return r to exceed the growth rate g, or the value is undefined.
- If you only have the current dividend D0, compute D1 = D0 * (1 + g) before entering it.
- The model fits mature dividend payers far better than growth or non-dividend stocks.
- Valuations are very sensitive to the r minus g spread, so test a range of assumptions.
Gordon growth model: frequently asked questions
What is the Gordon growth model?
The Gordon growth model, also called the constant-growth dividend discount model, values a stock as the present value of dividends that grow forever at a constant rate. The intrinsic value equals next year's dividend divided by the difference between the required rate of return and the dividend growth rate: P = D1 / (r - g).
What is D1 in the Gordon growth model?
D1 is the expected dividend one year from now (the next dividend to be paid). If you only know the current dividend D0, then D1 = D0 * (1 + g), where g is the constant growth rate. This calculator lets you enter D1 directly.
Why must the required return be greater than the growth rate?
The model only converges when r is greater than g. If the growth rate equals or exceeds the required return, the formula produces a negative or undefined value, which has no economic meaning. A perpetual growth rate above the required return is not sustainable for a real company.
What growth rate should I use?
The growth rate g should reflect a sustainable long-run dividend growth assumption, often tied to long-term economic or earnings growth. It is a user-editable input because it depends on your forecast. A common upper bound is the long-run growth rate of the overall economy.
What are the limitations of the Gordon growth model?
It assumes dividends grow at a single constant rate forever, which suits stable, mature, dividend-paying firms but poorly fits high-growth or non-dividend companies. The output is highly sensitive to the spread between r and g: small changes in either input can move the valuation substantially.
Official sources
- U.S. Securities and Exchange Commission: Dividend.
- U.S. Securities and Exchange Commission: How stock markets work.
Reviewed by the CalculatorHub team, edited by James Graham, 16 June 2026. See our methodology.