Module 29.2 LOS 29.d: Calculate implied growth rate of dividends using the Gordon Growth Model

We can calculate the implied growth rate of dividends if we know the value of the other 3 variables in the GGM.

where:

V₀ = fundamental value

D₀ = dividend just paid

D₁ = dividends expected to be received at end of Year 1

r = required return on equity

g = dividend growth rate

As long as we have 3 known variables, we can back out the 4^th using algebra.