Testing the Gordon’s Growth Model

Abstract

This study tests Gordon’s Growth Model. The data was obtained from annual accounts and NSE handbooks from the Safaricom limited website and NSE websites respectively.  The model was used to calculate the theoretical value of dividends for Safaricom limited for period 2008 to 2017. The theoretical values were then compared to the actual dividends paid out during the period of study. Paired sample t-test statistic was performed to determine whether there is a statistically significant difference between the means of two values. The findings of the study established that the t- statistics was -4.52 and the significant level was 0.003 meaning that the differences in means are statistically significant at 95% level of confidence. The conclusion was therefore that the Gordon’s growth model has not been applied in determining dividend payments amounts at Safaricom limited.

Keywords: Gordon’s growth model, dividends, Safaricom Ltd