Annual Dividend Growth Rate Calculator
Understanding the Annual Dividend Growth Rate
The Annual Dividend Growth Rate (DGR) is a crucial metric for investors, particularly those focused on dividend-paying stocks. It measures the percentage increase in a company's dividend per share over a specific period, typically a year. A consistent and positive DGR indicates that a company is not only profitable but also committed to returning increasing value to its shareholders over time.
Why is this important? For income-focused investors, a rising dividend stream can provide a growing source of passive income, potentially outpacing inflation. For growth-oriented investors, a company consistently increasing its dividends often signals financial health, strong cash flow, and management confidence in future earnings. It can also be a leading indicator of future stock price appreciation, as companies that can afford to raise dividends often have strong underlying business fundamentals.
Calculating the DGR is straightforward. The formula is:
Annual Dividend Growth Rate = [(Current Year Dividend – Previous Year Dividend) / Previous Year Dividend] * 100
In simpler terms, you find the difference between the most recent dividend and the one from the year before, then divide that difference by the previous year's dividend. Multiplying by 100 converts the result into a percentage.
For example, if a company paid a dividend of $2.00 per share last year and $2.50 per share this year, the calculation would be:
($2.50 – $2.00) / $2.00 = $0.50 / $2.00 = 0.25
Multiplying by 100 gives us a 25% annual dividend growth rate for that year.
When evaluating stocks, look for companies with a history of steadily increasing dividends. While a single year's growth rate is informative, a multi-year trend provides a more reliable picture of a company's commitment and ability to grow its dividend payments. Remember that past performance is not indicative of future results, but a strong dividend growth history is often a positive sign.