How to Calculate the Dividend Growth Rate

Use historical dividend payments to calculate the growth rate.

Dividends are considered capital distributions by a company to its shareholders. Paid out of company earnings, dividends are generally paid quarterly. Since a decrease in dividends is generally a sign of financial distress, most companies don't like to lower dividends. Therefore, dividend growth is a good sign that the company feels confident about future operations. To calculate the dividend growth rate, you need the dividend history, which can be found on the company website or by contacting investor relations.

Instructions

1. Obtain at least three years of dividend payment history by contacting the company's investor relations department. You may also be able to ask your stock broker.

2. Calculate the growth rate from year one to year two. Let's say that company XYZ has paid out a dividend of one dollar, two dollars, and three dollars, during the past three years. Subtract year one from year two. Divide by year one. In this example, the calculation is two dollars minus one dollar equals one dollar, and one dollar divided by one dollar equals one or 100 percent, which is the dividend growth rate.

3. Calculate the growth rate between year two and year three. For this example, the calculation is three dollars minus two dollars equals one dollar, and one dollar divided by two dollars equals one dollar, and one dollar divided by two dollars equals 50 percent.

4. Calculate the average dividend growth rate. Find the average between the two growth rates calculated. The average of 100 percent and 50 percent is 75 percent.

References

• Dividendstocksonline: How To Calculate a Dividend Growth Rate