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Updated 2026-04-20 · Investing · Educational use only ·

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Gordon Growth Model Calculator

Dividend stock valuation.

Calculate Gordon Growth Model fair value for dividend-paying stocks from current dividend, expected dividend growth, and your required return.

What this tool does

The Gordon Growth Model values a dividend-paying stock by projecting next year's dividend and discounting it by the spread between your required return and the expected dividend growth rate. Enter the current annual dividend, the anticipated long-term growth rate of that dividend, and your required return—the calculator then estimates what the share might be worth under this model. The result is highly sensitive to small changes in growth rate and required return assumptions; a 1% shift in either input can materially alter the valuation. This model works best for mature companies with stable, predictable dividend histories and is commonly used to compare theoretical fair value against market price. The calculation assumes dividends grow at a constant rate indefinitely and that required return exceeds growth rate—it does not account for economic cycles, dividend cuts, or changes in business fundamentals.

Quick answer: with the default values, the result is $52.50 (Gordon Growth Fair Value). Adjust the values below for your own figures.

Enter Values

Currency($)

Current Annual Dividend($)

Dividend Growth Rate %

Required Return %

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Formula Used

P = \frac{D _{0} ( 1 + g )}{r - g}

P

Fair value

D_{0}

Current dividend

g

Growth rate

r

Required return

Disclaimer

Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.

Gordon Growth Model values stocks based on perpetual dividend growth assumption. Formula: P = D₁ / (r - g), where D₁ is next year's dividend, r is required return, g is dividend growth rate. Best applied to mature, stable dividend-paying companies (utilities, consumer staples). Breaks down for high-growth companies (where g approaches r).

Example: company pays 2/share dividend, grows 5% annually, required return 9%. Next year dividend = 2.10. Fair value = 2.10 / (0.09 - 0.05) = 52.50. Current dividend yield = 2 / 52.50 = 3.81%. If trading at 40, undervalued by 30%. If trading at 70, overvalued by 33%.

Critical sensitivity: small changes in growth or required return dramatically change valuation. Same 2 dividend at 5% vs 6% growth: 52.50 vs 70.67 (35% difference). At 9% vs 8% required return: 52.50 vs 70 (33% difference). Gordon is commonly used for sense-checking rather than as a sole valuation method, with DCF and multiples providing cross-checks for triangulation. Required return must exceed growth rate or formula breaks (negative or infinite values).

A worked example

With the defaults: current annual dividend of 2, dividend growth rate of 5%, required return of 9%. The tool returns 52.50.

What moves the number most

The result responds to Current Annual Dividend, Dividend Growth Rate %, and Required Return %. The dividend scales the value proportionally, but the growth rate and required return dominate: because the price divides by the spread between them (r − g), a small change in either can swing the valuation sharply. The narrower that spread, the more extreme the effect. Try nudging the growth rate and required return a point at a time to see it.

The formula behind this

Gordon Growth Model: fair price = next year's dividend / (required return - growth rate).

Example Scenario

£2 × (1+5%) / (9%-5%) = $52.50.

Inputs

Current Annual Dividend:£2

Dividend Growth Rate %:5%

Required Return %:9%

Expected Result$52.50

Expected Result breakdown
Current Dividend	$2.00
Next Year Dividend	$2.10
Implied Dividend Yield	3.81%
Required Return - Growth	4.00%

This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.

Sources & Methodology

Methodology

The calculator applies the Gordon Growth Model, a standard dividend discount approach to equity valuation. It computes fair value by taking the most recent annual dividend, growing it forward one year at the stated growth rate, then dividing by the spread between your required return and that growth rate. The model assumes dividends grow at a constant rate indefinitely, that the required return exceeds the growth rate, and that the company will continue paying dividends. It does not account for fees, taxes, changes in dividend policy, business cycles, or the possibility that actual returns may differ materially from assumptions. Results reflect theoretical fair value under these steady-state conditions only.

References

Gordon Model

Frequently Asked Questions

When does Gordon work?

Most applicable to mature, stable dividend-paying companies with predictable growth — utilities, consumer staples (such as Unilever or Procter & Gamble), and telecoms. Poorly suited to high-growth tech (growth rate too unpredictable), no-dividend companies, and cyclicals (dividends fluctuate). For mature dividend payers it tends to track market valuations reasonably well; for unstable or high-growth firms it can be far off.

Why required return > growth?

Mathematical constraint: if g ≥ r, formula gives negative or infinite value (nonsensical). Economically: company can't grow dividends faster than economy forever (would eventually exceed GDP). Sustainable long-term growth capped by return requirement. If model implies g > r needed, company is overvalued at any reasonable r.

Sensitivity analysis?

Tiny input changes cause big valuation swings. 2 dividend, 9% required return: 5% growth = 52.50, 6% growth = 70.67 (35% higher). Sensitivity tables (a range of g and r) show more than a single point estimate. Valuations are often presented as a range, with the main drivers of uncertainty identified.

Two-stage Gordon?

For high-growth-then-mature companies, use two-stage model. Stage 1: high growth for 5-10 years. Stage 2: stable Gordon growth thereafter. Captures realistic life-cycle dynamics. Most appropriate for late-stage companies transitioning from growth to maturity. Single-stage Gordon misses this transition entirely.

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