function calculateDividendGrowth() {
var initialDiv = document.getElementById('initialDividend').value;
var finalDiv = document.getElementById('currentDividend').value;
var years = document.getElementById('timePeriod').value;
var resultBox = document.getElementById('dgrResult');
var valueBox = document.getElementById('dgrValue');
// Validation
if (initialDiv === "" || finalDiv === "" || years === "") {
alert("Please fill in all fields to calculate the growth rate.");
return;
}
var initialVal = parseFloat(initialDiv);
var finalVal = parseFloat(finalDiv);
var yearsVal = parseFloat(years);
if (isNaN(initialVal) || isNaN(finalVal) || isNaN(yearsVal)) {
valueBox.innerHTML = "Invalid Input";
resultBox.style.display = 'block';
return;
}
if (initialVal <= 0 || yearsVal <= 0) {
valueBox.innerHTML = "N/A";
resultBox.style.display = 'block';
alert("Initial dividend and number of years must be greater than zero.");
return;
}
// Logic: CAGR = (Ending Value / Beginning Value)^(1/n) – 1
var growthRatio = finalVal / initialVal;
var exponent = 1 / yearsVal;
var cagr = (Math.pow(growthRatio, exponent) – 1) * 100;
valueBox.innerHTML = cagr.toFixed(2) + "%";
resultBox.style.display = 'block';
}
How to Calculate Growth Rate in Dividends
Understanding how to calculate the growth rate in dividends is a fundamental skill for dividend growth investors. This metric helps you evaluate whether a company is increasing its payout to shareholders fast enough to outpace inflation and increase your purchasing power over time. A company that consistently raises its dividends is often a sign of financial health and disciplined capital allocation.
What is Dividend Growth Rate?
The Dividend Growth Rate (DGR) measures the annualized percentage increase in a stock's dividend over a specific period. While you can look at the growth from one year to the next, it is usually more insightful to calculate the Compound Annual Growth Rate (CAGR) over a longer period, such as 3, 5, or 10 years, to smooth out short-term fluctuations.
The Dividend Growth Formula
To calculate the annualized growth rate of dividends, we use the CAGR formula. This formula requires three inputs: the dividend payment at the start of the period, the dividend payment at the end of the period, and the number of years in between.
Current Dividend: The most recent annual dividend payment per share.
Initial Dividend: The annual dividend payment per share at the start of the period.
Years: The length of time between the two payments.
Example Calculation
Let's look at a practical example. Suppose you are analyzing a company with the following dividend history:
2018 Dividend (Initial): $1.50 per share
2023 Dividend (Current): $2.10 per share
Time Period: 5 Years
Using the formula above:
Divide the current dividend by the initial dividend: $2.10 / $1.50 = 1.40
Calculate the exponent (1 divided by years): 1 / 5 = 0.2
Raise the result from step 1 to the power of step 2: 1.400.2 ≈ 1.0696
Subtract 1: 1.0696 – 1 = 0.0696
Multiply by 100 to get the percentage: 6.96%
In this example, the company has grown its dividend at an annualized rate of 6.96% over the last five years.
Why is this Important?
For income-focused investors, the growth rate is just as important as the current yield. A stock with a high yield but 0% growth will eventually lose purchasing power due to inflation. Conversely, a stock with a lower yield but a high dividend growth rate (e.g., 10%+) can result in a significant "Yield on Cost" over a decade, providing a powerful compounding effect for your portfolio.
Interpreting the Results
Negative Growth: The company has cut its dividend. This is often a warning sign of financial distress.
0% to 3% Growth: The dividend is merely keeping pace with historical inflation. Purchasing power remains roughly static.
5% to 10% Growth: This is generally considered healthy growth, outpacing inflation and building real wealth.
10%+ Growth: Aggressive dividend growth. While attractive, investors should check the payout ratio to ensure such growth is sustainable.