Free Gordon Growth Model Calculator
Calculate intrinsic value using the Gordon dividend valuation model. Our free dividend discount model calculator helps you estimate the true worth of dividend-paying stocks. Learn how it works
What is the Gordon Growth Model?
The Gordon dividend growth model calculates a stock's intrinsic value based on future dividends growing at a constant rate. Formula: Value = D₁ / (r - g).
How to Use This Gordon Dividend Model Calculator
Why the Gordon Model Matters
The Gordon dividend valuation model is the gold standard for valuing dividend-paying stocks. Unlike growth stocks, dividend stocks provide predictable cash returns, making this model highly accurate for mature, dividend-paying companies.
Formula Inputs
| Input | Description |
|---|---|
| Current Dividend (D₀) | Annual dividend per share paid this year |
| Growth Rate (g) | Expected annual dividend growth rate (%) |
| Required Return (r) | Your desired rate of return / discount rate (%) |
The Gordon Growth Formula
Intrinsic Value = D₁ / (r - g)
Where D₁ = D₀ × (1 + g) is next year's expected dividend. This formula assumes dividends grow at a constant rate forever.
Find Dividend Aristocrats
Ready to apply the Gordon dividend growth model to real stocks? Use our screener to find dividend aristocrats and high-yield opportunities.
Mastering the Gordon Dividend Valuation Model
Investing in dividend stocks? Want to know if you're getting a good deal? The Gordon dividend growth model (also known as the dividend discount model or DDM) helps you calculate the true worth of dividend-paying stocks based on their future dividend potential. Instead of guessing if a stock is overvalued or undervalued, you get a clear, math-backed answer.
When to Use the Gordon Model
- Stable, mature dividend-paying companies
- Dividend aristocrats with consistent growth
- Utilities, REITs, and blue-chip stocks
- Companies with predictable dividend policies
Limitations to Know
- Requires constant growth assumption
- Growth rate must be lower than required return
- Not suitable for non-dividend stocks
- Sensitive to input changes
How the Gordon Model Helps Investors
Avoid Overpaying
Compare intrinsic value to market price to ensure you're not overpaying for dividend stocks that aren't worth their current valuation.
Identify Undervalued Stocks
Find dividend stocks trading below their true worth with strong long-term dividend growth potential.
Data-Driven Decisions
Make investment choices based on fundamentals and mathematics, not market hype or emotional reactions.
Stay Disciplined
Focus on intrinsic value and long-term dividend growth instead of being distracted by short-term price swings.
Gordon Model vs. Other Valuation Methods
| Method | Best For | Key Input | Limitation |
|---|---|---|---|
| Gordon Model | Dividend stocks | Dividends + Growth | Assumes constant growth |
| DCF | All companies | Free Cash Flow | Complex inputs |
| P/E Ratio | Quick screening | Earnings | Ignores growth quality |
Real Example: Coca-Cola (KO)
Inputs:
- Current Dividend (D₀): $2.04/share
- Expected Growth (g): 3% per year
- Required Return (r): 8%
Calculation:
D₁ = $2.04 × 1.03 = $2.10
Intrinsic Value = $2.10 / (0.08 - 0.03)
= $42.02 per share
If KO trades at $35, it may be undervalued. If it trades at $50, it may be overvalued. This gives you a clear decision framework.
Step-by-Step: How to Use the Calculator
- Enter the current dividend per share – Find this in the stock's financial statements (annual dividend paid this year).
- Enter the expected dividend growth rate – Use historical dividend growth as a guide (average over 5-10 years).
- Set your required return – This is your personal discount rate based on risk tolerance (typically 8-10% for dividend stocks).
- Hit calculate! – The calculator will show the intrinsic value.
If the intrinsic value is higher than the stock's current price, it might be undervalued—a potential buying opportunity. If it's lower, the stock may be overpriced, and you might want to wait for a better entry point.
💡 Pro Tip: Combining Models
While the Gordon dividend valuation model is excellent for dividend stocks, for companies that don't pay dividends or for a more comprehensive analysis, consider using our DCF Valuation Calculator. Combining multiple valuation methods gives you the most complete picture of a stock's true worth.
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Gordon Growth Model FAQ
- The Gordon growth model (also called dividend discount model or DDM) calculates a stock's intrinsic value based on its expected future dividends that grow at a constant rate. It's the most widely used valuation method for dividend-paying stocks.
- Use the Gordon model for stable, dividend-paying companies with consistent dividend growth (utilities, REITs, dividend aristocrats). Use DCF for companies with irregular or no dividends, growth stocks, or companies with varying cash flows.
- Use the historical dividend growth rate (average over 5-10 years) as a baseline. For conservative estimates, use GDP growth rate (2-3%). The growth rate must always be lower than your required return rate, or the formula won't work.
- The Gordon model becomes invalid if g ≥ r because it would imply infinite value. This typically happens with high-growth stocks that aren't suitable for this model. Instead, use a DCF model or wait until the company matures and growth stabilizes.
- Your required return should reflect your risk tolerance and opportunity cost. Typically 8-12% for stocks. A conservative approach: use 10-year Treasury yield + 5-7% equity risk premium. For dividend stocks specifically, 8-10% is common.
- No. It works best for mature companies with stable, predictable dividend growth (e.g., Coca-Cola, Johnson & Johnson, Procter & Gamble). It's less accurate for cyclical stocks, REITs with volatile payouts, or companies that may cut dividends.
- Yes, but with caution. REITs must distribute 90% of income as dividends, making the Gordon model applicable. However, REIT dividends can be volatile based on property values and interest rates. Use conservative growth estimates and higher discount rates.
- D₀ is the current (most recent) annual dividend already paid. D₁ is next year's expected dividend, calculated as D₀ × (1 + g). The Gordon model formula uses D₁, not D₀, so always project one year forward.