Dividend growth rate is the annualized percentage growth rate of cash or stock distributions made by a company to its shareholders. It is an important measure of a company’s financial health and can be calculated using free online tools or a company’s dividend payment history. A sharp decline in the dividend growth rate could be a cause for concern for investors relying on dividends for income.
A company’s dividend growth rate refers to the increase in payments returned to shareholders in the form of cash or stock distributions. It is an annualized percentage growth rate of distributions over a period of time. When a publicly traded corporation has excess cash flow, it has the option of reinvesting those funds back into the business for growth or rewarding shareholders with a dividend payment. Some investors rely on this form of distribution to earn income, and therefore a dividend growth rate becomes an important measure of a company’s financial health.
Companies that pay dividends can maintain or increase distributions quarterly or annually. These payments are made quarterly as a predetermined amount to preferred shareholders. Payments are also made to common stock investors, although these distributions are determined quarterly and must be approved by a company’s board of directors. During times when sufficient cash is available, a board of directors may approve a dividend increase. During times of financial difficulty, the board may suspend dividend payments entirely, even if only for a short period of time.
By determining a company’s dividend growth rate, an investor can see whether or not the payout has increased over a period of time. If the dividend growth rate has increased over a period of years or even decades, an investor may consider that there is a good chance that the trend will continue. However, a sharp decline in the dividend growth rate could be cause for pause before investing, especially if an investor will rely on dividends for income.
There are a couple of ways to determine a company’s dividend growth or decline rate. Some financial websites offer free tools that make this type of data available to users. However, investors must rely on the time period over which a company’s dividend growth rate has been calculated by that website and therefore may not have the flexibility to change the years in which it is calculated. keeps track of dividends.
Financial tools in which an investor can set the parameters to track dividends over any period of time can be found in various places on the Internet. Some data must be collected to use this tool. This information includes the dividend payment in the most recent year being tracked, the payment in the first year of the period being measured, and the number of years being measured.
Most companies list a dividend payment history on the investor relations (IR) page of the corporate website. If dividend history is not clearly listed, it can be found in a company’s annual report located on the IR page. To calculate a company’s dividend growth rate, access an online compound annual growth rate (CAGR) calculator tool. Enter the aforementioned data points into the required fields, and the dividend annual growth rate for the requested time period will be calculated.
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