What financial model calculates the intrinsic value of a stock based on the present value of all its future expected dividend payments growing at a constant rate?

Explanation

• The Gordon Growth Model (Dividend Discount Model) calculates stock intrinsic value using formula: $P_0 = frac{D_1}{r – g}$.
• In the formula, $D_1$ is expected next-year dividend, $r$ is required rate of return, and $g$ is constant dividend growth rate.
• The model requires that the required rate of return ($r$) strictly exceeds the dividend growth rate ($g$).