What is a Dividend Growth Rate?

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  • Written By: Geri Terzo
  • Edited By: A. Joseph
  • Last Modified Date: 31 August 2019
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A company's dividend growth rate refers to the increase in payouts returned to shareholders in the form of cash or stock distributions. It is an annualized percentage growth rate of distributions over a period of time. When a publicly traded corporation has excess cash flow, it has the option of reinvesting those funds into the business for growth or rewarding shareholders with a dividend payout. Some investors rely on this form of distribution for income, and therefore a dividend growth rate becomes an important measure of a company's financial health.

Dividend-paying companies may maintain or raise distributions on a quarterly or yearly basis. These payouts are made as a predetermined sum to preferred shareholders on a quarterly basis. Payouts also are made to common-share investors, although these distributions are determined on a quarterly basis and must be approved by a company's board of directors. During times when there is ample cash on hand, a board of directors might approve a dividend increase. During times of financial hardship, the board might cease the dividend payout altogether, if only for a short period of time.


By determining a company's dividend growth rate, an investor can see whether or not the payout has been on the rise or has been dropping over a period of time. If the dividend growth rate has been increasing over a period of years or even decades, an investor can consider there to be a good chance that the trend will continue. A sharp decline in a dividend growth rate, however, could be reason for pause before investing, especially if an investor will depend on dividends for income.

There are a couple of ways to determine a company's dividend rate of growth or decline. Some financial Websites offer free tools that provide this type of data at a user's fingertips. Investors must rely on the time period for which that Website has calculated a company's dividend growth rate, however, and therefore might not have the flexibility to change the years in which dividends are tracked.

Financial tools in which an investor can set the parameters to track dividends over any period of time can be found various places on the Internet. Some data must be gathered to use these tool. This information includes the dividend payout in the most recent year being tracked, the payout in the first year of the period being measured and the number of years being measured.

Most companies list a history of dividend payouts on the investor relations (IR) page of the corporate Website. If dividend history is not plainly listed, it can be found on a company's annual report located on the IR page. To calculate a company's dividend growth rate, access a compound annual growth rate (CAGR) calculator tool on the Internet. Enter the aforementioned data points into the required fields, and the annual dividend growth rate for the period of time requested will be calculated.


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