As a shareholder, it seems logical that if a company pays a higher dividend the equity becomes more valuable to me, the dividend being the numerator in the Gordon Growth formula. Let's turn our attention to the denominator. If growth increases, it again, seems sensible that this would be viewed as a good thing by a shareholder. Growth must increase the value of equity. Reviewing the Gordon Growth formula, we can see that the higher the growth, the greater the reduction in denominator. Dividing by a smaller number will certainly produce a higher equity value. In addition, if the company becomes riskier, then the value of equity feels like it should decline. Again we can see that since the cost of equity is part of the denominator in the Gordon Growth formula, any increase in the cost of equity will mean we're dividing by a larger number, reducing the value of equity. So what about returns? Well, we know that the return on equity is net income over the book value of opening equity. If we think about our book value of equity base analysis, we know that we take the beginning or opening equity, add net income, and subtract dividends to arrive at ending shareholders equity. The increase in the book value of equity describes the growth that shareholders really love. Net income is a common feature here. It feeds into return on equity and it feeds into growth. Equally, if dividends increase then this reduces the ending book value of shareholders equity.