Works best for:
In summary, the Gordon growth model is best suited for firms growing at a rate
comparable to or lower than the nominal growth in the economy and which have well
established dividend payout policies that they intend to continue into the future. The
dividend payout of the firm has to be consistent with the assumption of stability, since stable
firms generally pay substantial dividends1. In particular, this model will under estimate the
value of the stock in firms that consistently pay out less than they can afford and accumulate
cash in the process.