Dividend Discount Model with Gordon Growth as Terminal Value
Channel: Jonathan Kalodimos, PhD
Date: 2023-01-20

In this example, I combine the Dividend Discount Model with the Gordon Growth Model to estimate the value of a stock.

Example: Bluewater Cruisers International just paid a dividend of $2 per share. The dividends are expected to grow at a rate of 10 percent for the next 3 years and then level off to a growth rate of 4 percent indefinitely. If the required return is 12 percent, what is the value of the stock today?