Use the current share price and the Gordon growth model to back out the implied dividend growth rate, and explain it
The idea
The constant-growth model can be run backwards. If the market price is treated as fair value, the growth rate it implies is g = r − D1 ÷ P0. When only the current dividend is known, the implied growth rate comes from solving the model with D1 written as D0 × (1 + g): g = (P0 × r − D0) ÷ (P0 + D0). The implied rate can be compared with a fundamental estimate such as retention ratio times return on equity. If the implied rate is far above what the company can plausibly sustain, the share may be overvalued. The mistake to avoid is treating D0 ÷ P0 as though it were D1 ÷ P0, which ignores the year of growth already built into next year's dividend.
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