It's a bit difficult to figure out which numbers to use for Gordon. For the US, 1.8% for the 500 plus a div. growth rate of 1.5% p/a is logical.
If you choose to do global, Vanguard currently shows 2.27% yield for Total World ETF.
If you want to account for total investor yield on the 500 due to all the buybacks, then something around 3.5% -4% makes sense; anyone's guess what the growth rate will be in the future re buybacks, but you could use a low number like the 1.5% above. See this thread from Simplegift:
The Modified Gordon using EPS growth might work even better in today's world given central bank action over the last few years and the buyback phenom from corporations. Just use GDP growth for the EPS growth, so 2% or so added to the 1.8% div yield. Almost all ways of calculating Gordon today don't come up with the high numbers of the past as far as I can estimate. Using the equity premium ends up with low numbers as well. The current Vanguard numbers are for something like a low of 1-3% real return for an 80/20 portfolio. There's a lot of "roughness" in my perspective in trying to find any great formulas for estimating future returns. Just proximate estimates to insoluble questions.
Wm Bernstein did some good work on the topic back in the old efficient frontier.com days: Full Quote:
The Expected Return One-Step:"
"Now the punch line: the long-term equivalency of interest rates and GDP growth supplies us with a way of estimating the equity premium with breathtaking simplicity. This is because long-term corporate earnings and dividend growth must also be equivalent to GDP growth. And since long-term equity returns are closely approximated by the sum of dividend/earnings growth and the dividend rate, then the equity premium is simply the dividend rate. In other words, since in the long run it is approximately true that:
Treasury yield = GDP growth = Corporate dividend/earnings growth
Expected equity return = Corporate dividend/earnings growth + Corporate dividend rate
Then, it must be so that:
Stock return – Treasury yield = Equity premium = Corporate dividend rate
(For the purposes of this paper I’ve avoided the term "equity risk premium," as this properly refers to the stock return in excess of the risk-free T-bill rate.)
It’s just that simple. From 1926 to 1994 stocks returned 5% more than Treasury notes—almost exactly the average dividend rate for the period. And going forward, in the very long term, you’re gonna get all of a 1.3% excess return over bonds.
The problem is that on a day-to-day basis you get your return from multiple (PE) change—so-called "speculative" return in Bogle’s terminology. But over the ages your return is dividends plus growth, Bogle’s "fundamental" return. The trick is to think like Samuelson, Sharpe and Bogle, not like the Three Stooges. Is 1.3% an adequate reward for favoring stocks over bonds? You be the judge."