Dividend Growth Rate — Rate of Dividend Growth
What is dividend growth rate, how to calculate it and why it's crucial for dividend investors building passive income.
Definition
Dividend Growth Rate (DGR) is the annual growth rate of dividends paid by a company, expressed as a percentage. It shows how quickly a company increases its payments to shareholders.
Formula
DGR = ((Current dividend / Initial dividend) ^ (1/n) - 1) × 100%
Where n is the number of years.
Example: A company paid 4 PLN in dividends 5 years ago, today it pays 6 PLN.
DGR = ((6/4) ^ (1/5) - 1) × 100% = 8.4% annually
Why is DGR More Important Than Yield?
A company with low yield (2%) but high DGR (10%) can provide better long-term income than a company with 5% yield and zero growth.
| Year | Company A (yield 5%, DGR 0%) | Company B (yield 2%, DGR 10%) |
|---|---|---|
| 1 | 50 PLN | 20 PLN |
| 5 | 50 PLN | 29 PLN |
| 10 | 50 PLN | 47 PLN |
| 15 | 50 PLN | 76 PLN |
| 20 | 50 PLN | 122 PLN |
After 20 years, Company B generates over 2× more income than Company A.
What is a "Good" DGR?
- 0–3% — low, barely keeps up with inflation
- 3–7% — moderate, typical for mature companies
- 7–12% — high, companies in rapid dividend development phase
- 12%+ — very high, rarely sustained long-term
The ideal combination is yield 2–4% with DGR 7–10% — this is the engine of dividend snowball.
Dividend Aristocrats and Kings
- Dividend Aristocrats — S&P 500 companies raising dividends for at least 25 consecutive years
- Dividend Kings — companies raising dividends for at least 50 consecutive years
These companies have proven DGR history and are the foundation of dividend portfolios.
What to Watch Out For
- DGR can slow down — a company grew 15% annually for 5 years but may slow to 5%
- Payout ratio increases — if DGR is higher than earnings growth, the company depletes reserves
- One-time jumps — a single year with 50% increase doesn't mean a lasting trend
How Freenance Can Help
Freenance calculates DGR for each company in your portfolio and shows dividend growth trends on charts. This way you see which companies are actually building your passive income.
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