Gordon’s growth model

Gordon’s growth model is a very simple but powerful way of valuing shares based on a company’s future dividends. It is sometimes called a “dividend discount” model.

Gordon's growth model is a simple but powerful way of valuing shares based on the dividends that the company is expected to pay in future. It gets its name from Myron Gordon, an economist who originally published the method in the 1950s, and is the most common and straightforward example of a class of valuation methods called dividend discount models. 

The theory behind these is that the value of a company is equal to the value of all the dividends that it will ever pay to investors, discounted back to their present value (so a dividend paid in five years’ time is worth less than a dividend paid tomorrow). 

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