Starting Off With The Gordon Growth Model

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Starting off with the Gordon Growth Model was developed by Professor Myron Gordon of the University of Toronto. It explains that if any investor is aware of the dividends handed out in a year by any company, and at what rate that dividend will grow, the investor is able to determine the actual value of the stock, which describes what the investor should pay at most for the selected stock issued by the company. (Ozyasar, 2015) The Gordon Growth models inputs are relatively easy to determine. The dividends can be found using any platform or the general news (since they are announced publicly). The investor generally has an idea of the required return he/she demands of a certain stock they are investing in i.e 12%. The problematic issue arises in determining the rate at which a dividend will grow. This is determined through being able to make assumptions on what product will grow in the market or in general which company will grow, which usually makes final results “inexact” Ozyasar describes. The limitation of the Gordon Growth Model arises when there is no constant growth rate on a stock dividend, which in reality as Ozyasar describes is almost never the case. Despite these limitations the GGM is still a powerful tool used by investors constantly to make decisions on what required return or growth rate would they require for a stock to be favorable and from that an investor determines how to move on with their portfolio. For example Michael Blair discussed the use of the
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