Understanding Dividend Growth Rate
The dividend growth rate is a crucial metric for investors, particularly those focused on income generation through dividend-paying stocks. It represents the rate at which a company's dividend payments are increasing over a specific period. A consistent and positive dividend growth rate often signifies a healthy and expanding company, capable of returning more capital to its shareholders over time.
Calculating the dividend growth rate helps investors assess the sustainability and potential future income from their investments. It's a forward-looking indicator that can complement other valuation methods. A higher growth rate suggests that the company is not only able to pay dividends but also to increase them, which can lead to a higher yield on the original investment over the years.
There are several ways to calculate dividend growth, but a common and straightforward method is to compare the dividend per share from the most recent period to the dividend per share from a prior period.
Formula for Dividend Growth Rate:
The basic formula to calculate the dividend growth rate between two periods is:
Dividend Growth Rate = ((Current Period Dividend - Prior Period Dividend) / Prior Period Dividend) * 100%
This calculator simplifies this by allowing you to input the current dividend and the dividend from one year prior.