Dividend growth rate

The dividend growth rate measures how fast a company has raised its dividend per share, usually over one year or as an average over several years.

The formula for one year is:

A steady record of dividend increases suggests a business whose earnings and cash flow have grown enough to fund rising payouts. For income investors, growth matters as much as the starting yield: a lower yield that grows quickly can overtake a higher yield that stays flat within a few years.

Dividend growth only holds up if the underlying profits grow too. If the dividend rises faster than earnings or free cash flow for long, the payout ratio climbs and the increases become harder to sustain, so compare dividend growth with earnings growth and the payout ratio over the same period.