NEXT DIVIDEND / STABLE PERPETUAL GROWTH
Estimate a stable-growth equity value from next dividend, return, and growth assumptions. Review the entered period, benchmark, and risk assumptions alongside the result.
METHOD / WORKED EXAMPLE
The Gordon model compresses an infinite dividend stream into one value only when dividend growth is stable and remains below the required return; that boundary is fundamental, not a formatting preference.
WORKED DEFAULT
With an expected next-year dividend of $3, required return of 10%, and perpetual growth of 4%, the discount-growth spread is 6% and estimated value is $50 per share.
READ THE RESULT
Treat the output as sensitivity to three assumptions. Small changes in the spread can cause large value changes, especially when required return and growth are close.
ASSUMPTIONS AND LIMITS
This is a simplified valuation scenario, not a market-price forecast or recommendation; unstable growth and payout require a different model.
COMMON QUESTIONS
The stable perpetuity converges only when the discount rate is greater than the perpetual growth rate. If growth equals or exceeds required return, the compact formula becomes undefined or economically implausible rather than producing a usable negative value. Reconsider the stable-growth assumption or use a multi-stage model that transitions to a sustainable terminal rate.
Enter the expected dividend one period ahead, commonly called D1. If you only have the latest dividend D0 and assume immediate growth, first calculate D1 as D0 multiplied by one plus the growth rate. Keep dividend frequency consistent: an annual required return and annual growth rate require an annualized next-period dividend amount.
It is best suited to mature dividend-paying firms with stable leverage, payout behavior, and long-run growth close to a sustainable economic rate. It is generally a poor standalone model for non-dividend payers, rapidly changing businesses, temporary distress, irregular payouts, or firms where dividends differ materially from cash available to equity holders.
RELATED TOOLS
Use boundary
Divide the expected next-period dividend by the spread between required return and stable perpetual dividend growth.
Value = next-period dividend / (required return - perpetual growth).