Dividend Discount Valuation (Gordon Model) — Coca-Cola (KO)
Company chosen: Coca-Cola (NYSE: KO)
Annual dividend per share (D₀): $2.04 Fidelity International+1
Constant annual growth rate (g): 3.9% (5-year dividend CAGR) Finbox
Rate of return for equity (Rₑ): 9% (assumption)
Calculation
D₁ = D₀ × (1 + g)
D₁ = 2.04 × 1.039 = $2.1196
Value per share = D₁ / (Rₑ − g)
Value = 2.1196 / (0.09 − 0.039)
Value = 2.1196 / 0.051 = $41.56 per share
Compare to market price
Current market price (approx.): $69.87
Quick advice (buy / hold / sell)
Based on the Gordon dividend model, KO looks overvalued (market price is much higher than the model value). So, I would not buy at this price using this method alone — I’d say hold (or sell if the investor is strictly valuation-driven).
Conclusion: This also shows a limitation of the DDV model: the result is very sensitive to the assumptions (Rₑ and g), and the market may be pricing in other factors beyond dividends.
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