Gordon Growth Model
Definition of 'Gordon Growth Model'A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. Given a dividend per share that is payable in one year, and the assumption that the dividend grows at a constant rate in perpetuity, the model solves for the present value of the infinite series of future dividends.Where: D = Expected dividend per share one year from now k = Required rate of return for equity investor G = Growth rate in dividends (in perpetuity) |
|
Investopedia explains 'Gordon Growth Model'Because the model simplistically assumes a constant growth rate, it is generally only used for mature companies (or broad market indices) with low to moderate growth rates. |
Related Definitions
Articles Of Interest
-
Digging Into The Dividend Discount Model
The DDM is one of the most foundational of financial theories, but it's only as good as its assumptions. -
The Equity-Risk Premium: More Risk For Higher Returns
Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium. -
Why Dividends Matter
Seven words that are music to investors' ears? "The dividend check is in the mail." -
How And Why Do Companies Pay Dividends?
Explore arguments for and against company dividend policy, and learn how companies determine how much to pay out. -
How does the required rate of return affect the price of a stock, in terms of the Gordon growth model?
First, a quick review: the required rate of return is defined as the return, expressed as a percentage, that an investor needs to receive on an investment in order to purchase an underlying security. ... -
Mergers And Acquisitions: Understanding Takeovers
In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game. -
Interpreting A Company's IPO Prospectus Report
Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future. -
Strong Volume Gainers, Can It Continue?
Volume is one of those indicators that gets overlooked, likely because it's shown by default on almost every chart, making it a little dull. But volume is what drives markets. Big volume jumps ... -
After A Big Recovery Rally, It's Up To Renew Blue For Best Buy
Investors have bought Best Buy's story, but this quarter shows that a lot of work remains to be done -
Market Summary For May 17, 2013
The U.S. stock markets moved sharply higher this week, on track for its fourth straight week of gains, driven by ongoing improvements in economic indicators.