Dividend Growth Rate (DGR) measures how quickly a company increases its dividend payments over time. This metric is crucial for income investors focused on building a growing income stream rather than maximizing current yield.
Calculating DGR
Simple Annual Growth: DGR = (Current Dividend - Previous Dividend) / Previous Dividend × 100
Compound Annual Growth Rate (CAGR) for multiple years: DGR = (Ending Dividend / Beginning Dividend)^(1/Years) - 1
Example:
- 2020 dividend: $1.00
- 2025 dividend: $1.50
- 5-Year CAGR: ($1.50/$1.00)^(1/5) - 1 = 8.4% annual growth
Why DGR Matters
Income Growth: A 3% yielding stock growing dividends at 10% annually doubles your income in ~7 years.
Inflation Protection: Growing dividends help maintain purchasing power.
Total Return Driver: Historically, dividend growth stocks outperform due to compounding.
Quality Signal: Consistent dividend increases indicate financial strength and management confidence.
DGR by Category
| Category | Typical DGR | Examples |
|---|---|---|
| Dividend Aristocrats | 5-10% | JNJ, PG, KO |
| Tech Dividends | 10-20% | AAPL, MSFT, AVGO |
| Utilities | 3-5% | SO, DUK, NEE |
| REITs | 2-6% | O, VTR, AMT |
| High Yield | 0-3% | AT&T, MO, VZ |
DGR vs Current Yield Trade-off
Higher current yield often means lower growth:
- High Yield, Low Growth: QYLD yields 12% but no dividend growth
- Low Yield, High Growth: MSFT yields 1% but grows 10%+ annually
The Crossover Point: When does a growing dividend catch up to high current yield?
$10,000 invested:
- Stock A: 8% yield, 0% growth = $800/year forever
- Stock B: 3% yield, 10% growth = $300 year 1, but $778 by year 10, $2,015 by year 20
Finding Quality DGR Stocks
Look for:
- Consistent 5+ year growth streaks
- DGR exceeding inflation (3%+)
- Sustainable payout ratio (<60% for most sectors)
- Strong free cash flow coverage
- Dividend Aristocrat or Achiever status
DivAgent Educational Standards
This definition is part of the DivAgent Income Academy curriculum. Our glossary is designed to bridge the gap between institutional jargon and retail investor understanding. Each term is reviewed by our Research Team for accuracy, specifically in the context of:
- Tax implications (Ordinary vs. Qualified)
- Impact on Total Return calculations
- Relevance to Option-Income strategies
- Risk assessment in a retirement portfolio
*While we strive for precision, financial terminology can evolve. Always verify definitions with official regulatory sources (SEC, IRS) when making tax or legal decisions.