Gordon Growth Model

The Gordon Growth Model was first published by Myron J Gordon in 1959. It is a model for determining the intrinsic value of a stock and is based of future dividends that grow at a relatively consistent rate.

The formula looks like this.

Stock Value = D/K-G

Where

K = The expected dividends per share 1 year from now

D = The Required Rate of Return for Equity Investors

G = The Growth rate in dividends

The Formula has gained wide acceptance in the financial community as being one of the best ways to determine the price of a stock.

The Gordon growth rate works best for established companies as indexes because it is seeking to profit from the dividends of the stock. If you try to use it on more volatile equities it can turn against you as the price of the stock may fall during a bears market.