The Dividend Growth Rate measures the annualized percentage rate of growth that a particular stock's
dividend undergoes over a period of time. It is the holy grail for a "Dividend Growth Investor" hoping to
compound income over decades.
| Type |
Income / Growth Metric |
| Formula |
(Current Dividend ÷ Past Dividend)^(1/n) - 1 |
| Good Target |
> 6.0% CAGR |
1.0 The Formula
Worked Example
A stock paid a $1.00 dividend 5 years ago. Today it pays $1.50. Using the Compound Annual Growth Rate
(CAGR) formula, the dividend has grown by roughly 8.4% per year.
Dividend growth is mathematically more powerful than high initial yield. A stock yielding 2% that
grows its dividend by 10% a year will vastly outperform a stock yielding 5% that never grows its
dividend over a 20-year horizon.
3.0 Related Pages
Initial yield vs Growth rate is the primary trade-off in income investing.
A company can only grow its dividend at a sustainable rate if the Payout Ratio stays healthy.
Eventually, earnings must grow, or the dividend growth hits a ceiling.