Gordon growth: drag the growth rate
Drag perpetual growth. The dividend just paid and the required return stay still, so the price moves only because the spread in the denominator does. Implied yield equals required return minus growth, always, on this identity.
Gordon price
$41.60
Implied yield
5.00%
Required return stays at 9 percent. Implied yield equals 9 minus growth. Growth at 9 percent has no finite price. Illustrative arithmetic, not a valuation or advice.
Dividend just paid
$2.00, held still.
In short
- Drag the bar right for faster perpetual growth and a higher price.
- Drag it left toward zero growth, where the price is just the dividend over the required return.
- Watch implied yield fall one for one as growth rises.
- Focus the handle and use the arrow keys to step growth.
Next year's dividend, over a spread
How the Gordon growth model works is . How dividend yield works is against that implied . The dividend discount calculator is the identity.
Growth has to stay below k
At or above the required return the perpetuity has no finite price. How DCF works is the two-stage version that lets growth be high for a while. Gordon against two-stage DCF is that split.
A yield is not a coupon you can spend
Common questions
Why does implied yield equal k minus g?
Because the price is D1 over that spread, so D1 over P is the spread.
What if growth equals the required return?
Then there is no finite price. This picture stops before that point.
Is this a buy or sell?
No. It is a growing perpetuity on a teaching sheet. It is educational material, not advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.