👉 The Gordon Growth Model, named after economist William Gordon, is a financial valuation tool used to estimate the intrinsic value of a dividend-paying stock with a constant growth rate. It assumes that future dividends will grow at a steady, constant rate (g) indefinitely, providing a formula to calculate the present value of these future dividends. The model is expressed as \( P_0 = \frac{D_1}{r - g} \), where \( P_0 \) is the current stock price, \( D_1 \) is the expected dividend next year, \( r \) is the required rate of return (discount rate), and \( g \) is the constant growth rate. This model is particularly useful for valuing mature companies with stable dividend policies, offering a straightforward way to assess whether a stock's current price is justified by its expected future cash flows.
