What is Gordon growth model?

The Gordon growth model formula is based on the mathematical properties of an infinite series of numbers growing at a constant rate. The three key inputs in the model are dividends per share (DPS), the growth rate in dividends per share, and the required rate of return (ROR).

How do you calculate Gordon growth model?

The Gordon Growth Model formula is relatively simple and can be calculated using the following equation: Value of Stock = D1 / (k - g) Where: By dividing the expected dividend per share by the difference between the required rate of return and the dividend growth rate, the GGM calculates the intrinsic value of a stock.

What variables are included in the Gordon growth model?

Three variables are included in the Gordon Growth Model formula: (1) D1 or the expected annual dividend per share for the following year, (2) k or the required rate of return, and (3) g or the expected dividend growth rate. With these variables, the value of the stock can be computed as: Intrinsic Value = D1 / (k – g)