Gordon Growth Model
Definition
A simplified version of the Dividend Discount Model (DDM) that assumes dividends grow at a constant rate forever. Widely used to value mature, stable dividend-paying companies.
Formula / Rules
P₀ = D₁ / (r − g) where D₁ = next dividend, r = required return, g = constant growth rate
Example
Using the Gordon Growth Model: stock paying $2 dividend, 10% required return, 4% growth = $2 / (0.10 − 0.04) = $33.33.
Related Terms
Frequently Asked Question
What is the Gordon Growth Model?
The Gordon Growth Model (P₀ = D₁ / (r − g)) values stocks assuming constant perpetual dividend growth. Works best for mature companies with stable, predictable dividends.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.