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 ?
However, a number of asset-pricing models deviate from the standard Gordon model. One such model is the monetary bubble model we dismissed in the introduction.
John Campbell and I proposed a dynamic Gordon model, based on a log-linearization of the present value relation.
Gordon and Gordon (1997) tried to circumvent this drawback by developing a variation of the original Gordon model with a finite horizon.
Variations of the Gordon model are evident in other instances when ambitious leaders have sought to advance regionally significant objectives.
Conceptually, if the cash flow expected to be received by shareholders is less than all of the cash flows of an enterprise, and if minority shareholders experience risks in addition to the risks of the enterprise, then value to the shareholder ([V.sub.sh]) will be less than the freely traded value indicated by the Gordon Model. The questions are: How much less?
The Gordon model price for, say, 1980 was calculated by estimating g as the average annual growth rate in dividends and r as the average annual return to holding the S&P 500 index for the 1871-1979 period and using dividends paid during 1979.
(R must be greater than g for the integral to converge.) By the Gordon model, then, high (low) dividend price ratios have either of two interpretations.
The intuition of the Barro and Gordon model does not apply here; the policymakers are not trying to fool their private sector associates.
In embracing this unsettling reality, Gordon models a way of living dangerously in the law as he steers clear of the twin perils of complacency and despair.
NUMBER ONE: Craig Gordon models Under Armour's keeper's kit; ADMIRER: Arsenal's Arsene Wenger; FLASH GORDON: In action for Scotland
The men's apparel department includes an expanded assortment of Dickies work pants, which have proven popular at other Wal-Marts in the area, as well as the urban-themed Exsto clothing line, which Chicago Bulls point guard Ben Gordon modeled at the grand opening.
They come together again, first by coincidence, then by fiat of a reality television producer in Los Angeles who just happens to live in a house commissioned from Packer Gordon, collect Packer Gordon models and drawings, and bear a grudge: Gordon broke up his marriage.