Gordon Growth Model


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Gordon Growth Model

A simple model to estimate the value of a stock. The model assumes one knows the dividend per share in the stock one year hence and, more importantly, that the dividends will grow at a constant rate indefinitely. Because of the latter assumption, the model is useful primarily for blue chip companies and other mature companies where dividend growth is unlikely to change. It is calculated thusly:

Stock Value = Dividend per share in one year / (Required rate of return - dividend growth rate)
References in periodicals archive ?
April 29, 2015 /PRNewswire/ -- The May issue of the Business Valuation Update (BVU) is now out and includes articles on the S Corporation valuation puzzle, misapplication of Gordon Growth Model, disparate opinions of value in buy-sell agreements, and much more.
While we do not yet cover Rostelecom, if we apply a simplified approach to valuing the company's prefs, using a Gordon Growth model, and assume a 12% discount rate and conservatively a zero growth rate for the shares' dividends, we obtain an implied value of $1.
04 based on adaptation of the Gordon Growth Model," Global said.
52 based on DDM (80%) and adaptation of the Gordon Growth Model (20%).
The Gordon Growth Model discounts expected future cash flows, defining the price (P) of an asset as equal to the next period's cash flow (D) divided by the discount rate (r) minus the growth rate (g) of cash flows: P=D/(r-g).
Many articles extend the simplest Gordon growth model to allow dividend growth rates to have several stages--for instance, permitting growth firms to start with high dividend growth rates and then decelerate to a stable long-run rate.
Using the Gordon Growth Model would explain why market-derived capitalization rates are lower than might be expected.
Our valuations are based on a Gordon growth model (GGM), with a median CoE of 11 per cent, RoAE of 20 per cent and a terminal growth rate of three per cent.
Based on our fundamental assessment of the stocks using a three-stage Gordon growth model, we rate Halyk Bank and Bank CenterCredit (BCC) as BUYs, with estimated potential upsides of 17% and 36%, respectively.
THE TRADITIONAL INCOME APPROACH AND THE GORDON GROWTH MODEL
We apply the Gordon Growth Model and peer valuation methods to value Ukrainian banks.
JPM value Qatari banks on the Gordon growth model (through to 11 March), assuming an approximate 6 per cent growth rate, 11.