Average Dividend Growth Rate Formula

Dividend Growth Rate Formula:

\[ DGGR = \left( \left( \frac{\text{End Div}}{\text{Start Div}} \right)^{\frac{1}{n}} - 1 \right) \times 100 \]

Dividend Growth Rate (DGGR):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Dividend Growth Rate Formula?

The Dividend Growth Rate (DGGR) formula calculates the annualized percentage rate at which a company's dividend payments have grown over a specified period. This metric is crucial for investors using the Gordon Growth Model to value dividend-paying stocks.

2. How Does the Calculator Work?

The calculator uses the Dividend Growth Rate formula:

\[ DGGR = \left( \left( \frac{\text{End Div}}{\text{Start Div}} \right)^{\frac{1}{n}} - 1 \right) \times 100 \]

Where:

\( DGGR \) — Dividend Growth Rate (%)
\( \text{End Div} \) — Final dividend (currency/share)
\( \text{Start Div} \) — Initial dividend (currency/share)
\( n \) — Number of years

Explanation: The formula calculates the compound annual growth rate of dividend payments over the specified period, providing a standardized measure for comparison across different timeframes.

3. Importance of Dividend Growth Rate

Details: DGGR is essential for dividend investors as it helps assess a company's ability to consistently increase shareholder returns, indicates financial health, and is a key input in dividend discount valuation models.

4. Using the Calculator

Tips: Enter the starting dividend and ending dividend amounts in currency per share, and the number of years over which the growth occurred. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good dividend growth rate?
A: A good DGGR typically exceeds the inflation rate and is sustainable. Rates of 5-10% annually are generally considered strong for established companies.

Q2: How is DGGR used in the Gordon Growth Model?
A: In the Gordon Growth Model, DGGR is used as the growth rate (g) to calculate the intrinsic value of a stock: P = D / (r - g), where D is dividend, r is required return.

Q3: Should I use historical or projected DGGR?
A: For valuation purposes, projected future DGGR is more relevant, though historical DGGR provides insight into management's dividend policy consistency.

Q4: What factors affect dividend growth rate?
A: Company earnings growth, payout ratio, cash flow stability, industry conditions, and management's dividend policy all influence DGGR.

Q5: Can DGGR be negative?
A: Yes, if a company reduces its dividend payments over the period, DGGR will be negative, indicating deteriorating financial performance.