Dividend Growth Rate

What is Dividend Growth Rate?

The annualized rate at which a company's dividend per share increases over a period, often measured as a 3, 5, or 10-year compound annual growth rate.

Overview

The dividend growth rate is the annualized pace at which a company's dividend per share increases over a period. It is most often quoted as a compound annual growth rate (CAGR) over 3, 5 or 10 years, alongside a one-year, year-over-year change.

Where dividend yield describes the income a stock pays today, the growth rate describes how that income has changed. A stock with a modest yield and steady growth can eventually pay more on the original investment than a higher-yielding stock whose dividend stays flat.

Also Known As: Dividend CAGR, Dividend Growth, DGR

Formula

Dividend CAGR = (DPS_end ÷ DPS_start)^{1 ÷ years} − 1

Formula Components:

DPS end: Dividends per share for the most recent full period
DPS start: Dividends per share for the period the given number of years earlier
Years: The number of years between the two periods (3, 5 or 10)

Year-over-Year Growth

YoY Growth = (DPS Last 12 Months − DPS Prior 12 Months) ÷ DPS Prior 12 Months

How FinSpry Calculates It

3, 5 and 10-year CAGR: FinSpry adds up all dividends per share by the calendar year of their ex-dividend date. The current, partial year is dropped, so DPS end is the most recent completed calendar year. A 3-year CAGR needs at least 4 completed years of dividends, a 5-year CAGR needs 6 and a 10-year CAGR needs 11. If either endpoint is zero, the figure is left blank.
Dividend growth (YoY): Uses trailing windows rather than calendar years: dividends with ex-dates in the last 12 months compared with those in the 12 months before that. It is blank when nothing was paid in the earlier window.
Years of dividend growth: Counts consecutive completed calendar years in which the regular annual rate (the median payment multiplied by the payment frequency) rose. Using the median keeps a one-off special dividend from creating or breaking a streak.

Some sources measure the CAGR from trailing 12-month or fiscal-year dividends instead of calendar years, or exclude special dividends, so published growth rates for the same company can differ slightly.

Calculation Example

A hypothetical company pays a quarterly dividend that it raises each year. Its dividends per share, totaled by calendar year of ex-dividend date, were:

Example Company - Annual Dividends per Share:

Year 1	$1.50
Year 2 (+5.33%)	$1.58
Year 3 (+5.06%)	$1.66
Year 4 (+5.42%)	$1.75
Year 5 (+6.29%)	$1.86
Year 6, latest completed year (+7.53%)	$2.00

5-Year Dividend CAGR

CAGR = ($2.00 ÷ $1.50)^1/5 − 1

= 1.3333^0.2 − 1 = 1.0592 − 1

= 5.92% per year

3-Year Dividend CAGR

CAGR = ($2.00 ÷ $1.66)^1/3 − 1

= 1.2048^1/3 − 1 = 1.0641 − 1

= 6.41% per year

Year-over-Year Growth (trailing 12 months)

Last 12 months: $2.04 · Prior 12 months: $1.92

YoY = ($2.04 − $1.92) ÷ $1.92 = $0.12 ÷ $1.92

= 6.25%

Interpretation: The dividend grew about 5.9% a year over five years and faster, about 6.4% a year, over the last three, so growth has been picking up. The annual dividend rose in each of the five years shown, which would count as 5 years of dividend growth. A CAGR uses only the two endpoints, so the year-by-year changes in brackets are worth checking too.

How to Interpret

Read the growth rate together with the yield, the payout ratio and the length of the growth record. A rough way to compare growth with general price levels is to set it against the inflation rate: dividends growing faster than inflation increase real income.

Steady, Covered Growth

Consistent increases across the 3, 5 and 10-year windows, backed by growing earnings and a stable payout ratio, suggest growth the business can support.

Slowing Growth

A 3-year CAGR well below the 10-year CAGR shows raises are getting smaller. That can reflect a maturing business or a payout ratio that has less room to rise.

Growth Outpacing Earnings

Dividends that rise much faster than earnings per share push the payout ratio higher every year, which cannot continue indefinitely.

Limitations

Endpoint sensitivity: A CAGR depends only on the first and last year. A cut followed by a recovery can produce the same CAGR as steady raises.
Special dividends: Calendar-year totals include one-off payments, so a special dividend in the start or end year can distort the CAGR and the YoY figure.
Payment timing: If an ex-date slips from late December into January, one calendar year gets five quarterly payments and another gets three, which moves both endpoints.
Backward-looking: Past growth does not guarantee future raises. Boards set each dividend based on current earnings, cash flow and plans.

Why It Matters

Income Projection: The growth rate is the main input for estimating future dividend income, for example in the Dividend Calculator, which pre-fills its growth assumption with a stock's YoY dividend growth when available.
Management Confidence: Boards tend to raise dividends only when they expect earnings to support the higher payment, so a long growth record reflects years of such decisions.
Compounding with Reinvestment: Growing dividends combined with a dividend reinvestment plan increase both the payment per share and the number of shares receiving it.

Related Financial Ratios

These related metrics help judge whether dividend growth can continue:

Dividend Payout Ratio

Shows how much room earnings leave for future raises.

Dividend Yield

Current income relative to price, the starting point that growth builds on.

Earnings Per Share (EPS)

Long-run dividend growth depends on growth in earnings per share.

Free Cash Flow

The cash that ultimately funds dividends and their increases.

Use This Metric

Screen dividend stocks by 5-year dividend CAGR, YoY dividend growth and years of consecutive growth.

Screen by Dividend Growth

How much income does a stock return to shareholders?

Explore all Dividend Investing Metrics

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