This tool helps you calculate the intrinsic value of a stock based on the Gordon Growth Model.

## Gordon Growth Model Calculator

The Gordon Growth Model (GGM) is a method for calculating the intrinsic value of a stock based on a future series of dividends that are expected to grow at a constant rate. This model is particularly useful for valuing stable and mature dividend-paying companies. Here’s how to use the calculator:

### How to Use the Calculator

- Enter the Annual Dividend (D) the company pays. This is the amount of dividend expected to be paid out over one year.
- Enter the Expected Growth Rate (g) of the dividend payments as a percentage. This is the rate at which you expect the dividends to grow indefinitely.
- Enter the Discount Rate (r) as a percentage. This is your required rate of return or the rate at which future dividends are discounted back to their present value. It should be greater than the growth rate.
- Click the “Calculate” button to get the intrinsic value of the stock.

### How It Calculates the Results

The formula used by the Gordon Growth Model calculator is as follows:

Intrinsic Value = D / (r - g)

where:

**D**is the annual dividend payment.**r**is the discount rate (your required rate of return).**g**is the expected growth rate of the dividend payments.

### Limitations

The Gordon Growth Model assumes that dividends will grow at a constant rate indefinitely, which may not always be realistic. It is most applicable to companies with stable, predictable growth rates. If the growth rate (g) is equal to or greater than the discount rate (r), the model cannot be used as it would imply an infinite or negative stock value, which isn’t practical.

## Use Cases for This Calculator

### Calculate Stock Value with Gordon Growth Model

Use this calculator to determine the value of a stock using the Gordon Growth Model. Enter the required data – dividend per share, required rate of return, and growth rate – to get an estimate of the stock’s value based on its future dividends.

### Estimate Dividend Growth Rate

If you know the current stock price, dividend per share, required rate of return, and the stock’s value using the Gordon Growth Model, you can calculate the growth rate. This helps you understand what growth rate the market is expecting from the stock based on its current valuation.

### Assess Required Rate of Return

By inputting the current stock price, dividend per share, growth rate, and stock value using the Gordon Growth Model, you can determine the implied required rate of return. This allows you to compare the market’s expectation with your own return requirements.

### Explore Impact of Changing Dividend Per Share

Experiment with different values of dividend per share when using the Gordon Growth Model calculator. See how changes in the dividend amount affect the stock’s valuation and understand the importance of consistent dividend payments for investors.

### Analyze Sensitivity to Growth Rate Variations

Adjust the growth rate parameter in the Gordon Growth Model calculator to understand its impact on the stock’s value. Assess how changes in the growth rate assumption can significantly alter the calculated valuation, highlighting the importance of accurate growth rate forecasts.

### Investigate Stock Price Volatility

By manipulating the stock price input in the calculator, you can observe how changes in the market valuation affect the stock’s perceived value based on the Gordon Growth Model. This exercise helps you understand how stock price fluctuations impact investor decisions.

### Compare Different Stocks’ Valuations

Use the Gordon Growth Model calculator to compare the valuations of multiple stocks by entering their respective dividend per share, growth rate, and required rate of return. This comparative analysis aids in identifying undervalued or overvalued stocks in the market.

### Evaluate Long-Term Investment Opportunities

Assess the attractiveness of long-term investment opportunities by using the Gordon Growth Model calculator to estimate the intrinsic value of stocks. Determine whether a stock is trading below its calculated value, indicating a potential investment opportunity.

### Plan Dividend Strategies

Utilize the Gordon Growth Model calculator to plan dividend strategies based on your desired rate of return. By adjusting the growth rate and dividend amount inputs, you can evaluate different scenarios to optimize dividend payouts while meeting your investment objectives.

### Understand Market Expectations

By analyzing the implied required rate of return calculated using the Gordon Growth Model, you can gain insights into the market’s expectations for a particular stock. Compare these expectations with your own assessments to make informed investment decisions.