The Gordon Growth Model

In contrast to a standard stock valuation with the Gordon growth model, assuming a negative growth rate of dividends will make the estimated stock price:

No, actually. Consider an example of what could happen if the sign switches from something like 2% to -2% in the calculation.

That's right! A negative growth rate instead of a positive growth rate logically means that dividends are shrinking each year, and therefore shrinking even faster in present value terms. Mathematically, a negative growth rate will make the denominator of the Gordon growth model calculation larger, which leads directly to a smaller value.

No. A negative growth rate will work just fine for the Gordon growth model.

larger.

smaller.

impossible to calculate.