Fundamental Glossary / Valuation Methods
Gordon Growth Model
The constant-growth form of the dividend discount model.
Formula
Value = next year's dividend / (cost of equity - perpetual dividend growth rate).
What it means
Myron Gordon's model assumes dividends grow at one rate forever and that the cost of equity is above that rate. Under those assumptions the infinite sum collapses into one division.
It is the dividend version of the perpetuity used as a DCF terminal value.
How to read it
It is a sanity check for a stable dividend payer. Plug in a defensible growth rate and a defensible cost of equity and see whether today's price is in range.
What to watch
The model is unusable when the growth rate is at or above the cost of equity, and it is misleading when growth is high but temporary. Do not use a 15% perpetual growth rate just because the last five years were 15%.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.