Dividend Growth Rate Calculation

Article of the week

Unnamed Staff (Corporate Finance Institute): Dividend Growth Rate

Core Ideas

1) Single year: The dividend growth rate (DGR) for a single year is calculated from the trailing-twelve-month (TTM) dividend rates at the year’s start (DR_start) and end (DR_end):
DGR = [(DR_end / DR_start) – 1] × 100%

2) Multi-year CAGR: The annualized DGR for n consecutive years – aka compound annual growth rate (CAGR) – is calculated from the TTM dividend rates at the multi-year period’s start (DR_start) and end (DR_end):
DGR = {[(DR_end / DR_start) ^ (1 / n)] – 1} × 100%

3) Multi-year average: Alternatively, the annualized DGR for n consecutive years can be approximated by the (arithmetic) average of the n yearly dividend growth rates:
DGR ≈ {[(DR₁ / DR₀ + DR₂ / DR₁ + … + DR_n / DR_n-1) / n] – 1} × 100%
This average slightly overestimates the CAGR.