1. USING THE CONSTANT GROWTH MODEL TO PREDICT THE LONG-RUN STOCK RETURNS
The Constant Growth Model (Gordon Model) states that annual equity returns should equal dividend yields plus the annoual growth rate in dividend payouts.
This formula can be applied either to a single stock (as we have been doing so far) or to an index like the S&P 500 index.
Over the last 80 years, dividend yield has been a good predictor for long-run stock returns. 
Currently: S&P 500 yields = 2.2%
Historic dividend growth rate on dividend growth rate = 4.3%
Predicted stock return, r, implied by the above = D/P + g = = 6.5% 1 1

2. How well has this formula held up?
USING THE CONSTANT GROWTH MODEL TO PREDICT THE LONG-RUN STOCK RETURNS (CONT’D)
How well has this formula held up?
In the 20th century, this formula predicted a yield of nearly 9.0 %, which was close to the S&P 500 index's actual yield of 9.7% 2 2