What Is Dividend Growth Rate?
Dividend growth rate measures how fast a company increases its dividend payments over time. It is one of the most important factors for long-term dividend investors because it determines how quickly your income stream grows.
This guide is for educational purposes only and does not constitute investment advice. Data sourced from SEC EDGAR filings. Past performance is not indicative of future results. Consult a qualified financial advisor before making investment decisions.
1. What Is Dividend Growth Rate?
Dividend Growth Rate Dividend Growth Rate (DGR) measures the annualized percentage increase in a company's dividend payments over a specific period. It is typically expressed as a Compound Annual Growth Rate (CAGR) to account for compounding effects.
DGR answers a simple question: how fast is this company raising its dividend? A company paying $1.00 per share today that grows dividends at 7% annually will pay $1.97 per share in 10 years — nearly doubling your income without buying more shares.
This metric is especially relevant for Dividend Kings and Aristocrats, which have increased dividends for 50+ and 25+ consecutive years, respectively.
2. How to Calculate DGR (CAGR Formula)
The most accurate way to measure dividend growth is the Compound Annual Growth Rate (CAGR) formula:
Formula
Ending DPS = Dividends per share in the most recent year
Beginning DPS = Dividends per share in the starting year
Years = Number of years between the two periods
You can also calculate simple year-over-year growth:
Formula
YoY growth shows short-term acceleration or deceleration, while CAGR smooths out year-to-year volatility. Use CAGR for long-term comparisons and YoY for trend monitoring.
3. Calculation Example
Suppose a company paid the following dividends per share over 5 years:
| Year | DPS | YoY Change |
|---|---|---|
| FY2019 | $2.00 | — |
| FY2020 | $2.10 | +5.0% |
| FY2021 | $2.20 | +4.8% |
| FY2022 | $2.35 | +6.8% |
| FY2023 | $2.50 | +6.4% |
CAGR calculation:
($2.50 / $2.00)^(1/4) - 1 = 0.0574 = 5.74%
Simple average of YoY changes: (5.0 + 4.8 + 6.8 + 6.4) / 4 = 5.75%
In this case, the CAGR (5.74%) and simple average (5.75%) are nearly identical because growth was consistent. When growth varies widely year to year, the difference becomes significant.
4. CAGR vs Average Growth Rate
These two measures can diverge significantly when growth rates are volatile:
| Measure | What It Captures | Best For |
|---|---|---|
| CAGR | Actual compounded return, accounts for sequencing | Long-term comparisons (5, 10, 15 years) |
| Simple Average | Arithmetic mean of individual yearly changes | Identifying trends and outlier years |
Why CAGR is preferred: If a company grows dividends 20% one year and 0% the next, the simple average is 10%. But the actual compounded growth over 2 years is 9.5% — lower because of the mathematical reality of compounding.
Billiver displays CAGR for 3-year, 5-year, and 10-year periods on every company's dividend history page, giving you a consistent long-term picture.
5. What Is a Good Dividend Growth Rate?
| DGR Range | Interpretation |
|---|---|
| <3% | Below inflation — purchasing power of income erodes over time |
| 3-5% | Moderate — typical of utilities and REITs with higher yields |
| 5-10% | Strong — characteristic of many Dividend Aristocrats |
| 10-15% | Excellent — often from lower-yielding growth companies |
| >15% | Exceptional but verify sustainability (often from a low base) |
The Rule of 72
Divide 72 by the DGR to estimate how many years it takes for dividends to double. At 7% DGR, dividends double in roughly 10 years. At 10% DGR, they double in about 7 years.
Context matters: a 4% DGR from a utility yielding 5% is a reasonable income play, while a 4% DGR from a technology company yielding 0.5% is relatively slow. Always consider growth alongside current dividend yield.
6. DGR vs Dividend Yield
Dividend yield tells you what you earn today. Dividend growth rate tells you how fast that income will increase. The two often move in opposite directions:
| Strategy | Starting Yield | DGR | Yield on Cost After 10Y |
|---|---|---|---|
| High Yield / Low Growth | 5.0% | 2%/year | 6.1% |
| Low Yield / High Growth | 2.0% | 10%/year | 5.2% |
Yield on cost = current annual dividend / original purchase price per share
After 10 years, the high-yield stock still pays more in absolute terms. But by year 15-20, the high-growth stock overtakes it and pulls further ahead. For investors with long time horizons, dividend growth often matters more than starting yield.
The Dividend Kings exemplify the growth approach: moderate starting yields but 50+ years of consecutive increases, resulting in substantial yield on cost for long-term holders.
7. Where to Find Dividend Growth Data
On Billiver, dividend growth data is available for every S&P 500 company:
- Company dividend pages — 3-year, 5-year, and 10-year CAGR calculated from SEC 10-K filing data
- Dividend Kings — Companies with 50+ years of increases and their growth rates
- Dividend Aristocrats — S&P 500 members with 25+ years of increases
Explore Further on Billiver
Disclaimer: This guide is for educational purposes only and does not constitute investment advice. Past dividend growth does not guarantee future increases. Companies can reduce, freeze, or eliminate dividends at any time. Always conduct your own research before making investment decisions.