Dividend growth rate: how fast a dividend has grown

The formula

Growth rate = (Ending dividend ÷ Starting dividend)^{1 ÷ years} − 1

This is the compound annual growth rate (CAGR): the steady yearly rate that would take the starting dividend to the ending one. Real dividends grow in uneven steps, and some years not at all; CAGR smooths that into one number you can compare.

Example

A company paid $1.00 a share in dividends ten years ago and pays $1.61 now: ($1.61 ÷ $1.00)^{1 ÷ 10} − 1 = 4.88% a year.

Why not simply divide the total growth by the years? $1.00 to $1.61 is 61% in total, and 61% ÷ 10 = 6.1%. That ignores compounding: each raise is on top of the earlier ones, so the true yearly rate is lower.

How long until it doubles

The Rule of 72 gives a quick answer: divide 72 by the growth rate. At 7% a year a dividend doubles in about 72 ÷ 7 = 10.3 years; the exact figure is 10.2 years.

Watch for splits

A stock split cuts the dividend per share without cutting anyone’s income. Use split-adjusted dividends for both years, or the growth rate will look like a collapse. Check whether the history you are reading is already adjusted before comparing.

Work out a growth rate, or project a dividend forward, with the Dividend Growth Calculator.