Valuation of Stocks:

In practice, the value of a share is determined in the market through the auction process, as exemplified by trading of shares on Wall Street. 
In theory, the value of a share of stock (or the price per share, P) is the present value of the cash flows related to owning that stock.  Myron Gordon developed a model that assumes that dividends are the cash flow that the stock holder is entitled to, and that dividends will grow at a constant rate (g) forever.  When discounted at the "required rate of return to the equity investor" (Ke), then the present value (P) of the endless stream of constantly growing dividends, when discounted at Ke, equals D₁/(Ke-g), where D₁ is the expected dividends for the following year.

There are four variations of Gordon's model - two for common stocks and two for preferred stocks.  Preferred stocks differ from Common (in this context) in that preferred dividends are fixed.  And the two variations (for each of the two types of stocks) differ only in the variable that is being solved for - in one case, the unknown variable is P (the theoretical price per share), and in the other K, either Ke or Kpr, the expected return to the stockholder.

1. Common:  P = D₁/(Ke-g)
2.       "         Ke = (D₁/P) + g
3. Preferred:  P = D/Kpr
4.     "           Kpr = D/P  

Caveats: 
* All variable are on an annualized basis.
* With Common, D₁ is generally not a given.  It is estimated by taking the actual dividends over the past 4 quarters (Do), and increasing them by the estimated growth rate.  That is, D₁ = Do (1 + g). 
* With Preferred, because dividends are fixed, there is no growth (g) in dividends, so that term is missing from the models. 
* These models are valid in their mathematics, but they are forward looking models as opposed to "historical", or backward looking models. Consequently some of the variables are only best guess estimates, and the resulting prices or returns cannot be guaranteed.  Some analysts factor in that notion that dividends follow earnings, and that earnings growth determines dividend growth.  Other analysts recognize that earnings are not real cash flows, and that real cash flows are more relevant to value than earnings.  Consequently, they modify this model by regarding expected cash flows rather than expected dividends.