Dividend Growth Rate (DGR)

Dividend Growth Rate (DGR) measures how fast a company is increasing its dividend payments. For income investors, a healthy and consistent DGR is often more important than current yield.

Formula: DGR = [(Dividend End / Dividend Start)^(1/Years) - 1] × 100

Or Year-over-Year: DGR = [(New Dividend - Old Dividend) / Old Dividend] × 100

Why DGR Matters:

Factor	Impact
Income Growth	Dividends that grow faster than inflation increase purchasing power
Total Return	Dividend growth often correlates with stock price appreciation
Quality Signal	Consistent growth indicates strong, confident management
Future Yield	Today's 2% yield at 10% DGR becomes 5.2% YOC in 10 years

DGR Categories:

DGR Range	Category	Examples
0-3%	Low/Slow	Utilities, REITs
3-7%	Moderate	Consumer staples, financials
7-12%	Strong	Quality dividend growers
12%+	High	Growth companies starting dividends

Real Company Examples (10-Year DGR):

Company	10-Year DGR	Current Yield
Visa (V)	~17%	~0.8%
Home Depot (HD)	~18%	~2.5%
Microsoft (MSFT)	~10%	~0.7%
Johnson & Johnson (JNJ)	~6%	~3.0%
AT&T (T)	~2%	~6.5%

The Trade-off:

• High yield + low growth = stable income, limited growth
• Low yield + high growth = growing income over time
• Sweet spot: 2-4% yield with 7-10% DGR

DGR vs. Inflation:

• If DGR < inflation: purchasing power declines
• If DGR > inflation: real income grows
• Target: DGR at least 2-3% above inflation

Calculating 10-Year DGR: 2015 dividend: $1.00 | 2025 dividend: $2.50 DGR = (2.50/1.00)^(1/10) - 1 = 9.6%

Red Flags:

• Declining DGR over time
• Inconsistent year-to-year changes
• DGR exceeding earnings growth (unsustainable)