Financial Statement Analysis

- Ratio Analysis of Financial Statements (Formula, Types, Excel)
- Ratio Analysis Advantages
- Ratio Analysis
- Liquidity Ratios
- Cash Ratio
- Cash Ratio Formula
- Quick Ratio
- Quick Ratio Formula
- Current Ratio
- Current Ratio Formula
- Acid Test Ratio Formula
- Defensive Interval Ratio
- Working Capital Ratio
- Working Capital Formula
- Net Working Capital Formula
- Changes in Net Working Capital
- Cash Flow from Operations Ratio
- Cash Reserve Ratio
- Operating Cycle Formula
- Current Ratio vs Quick Ratio
- Bid Ask Spread
- Liquidity vs Solvency
- Liquidity
- Solvency
- Solvency Ratios
- Equity Ratio
- Capital Adequacy Ratio
- Liquidity Risk
- Altman Z Score

- Turnover Ratios
- Inventory Turnover Ratio
- Accounts Receivable Turnover
- Accounts Receivables Turnover Ratio
- Accounts Payable Turnover Ratio
- Days Inventory Outstanding
- Days in Inventory
- Days Sales Outstanding
- Average Collection Period
- Days Payable Outstanding
- Cash Conversion Cycle
- Cash Conversion Cycle (CCC) Formula
- Fixed Asset Turnover Ratio Formula
- Debtor Days Formula
- Working Capital Turnover Ratio

- Profitability Ratios
- Profitability Ratios Formula
- Common Size Income Statement
- Vertical Analysis of Income Statement
- Profit Margin
- Gross Profit Margin Formula
- Gross Profit Percentage
- Operating Profit Margin Formula
- EBIT Margin Formula
- Operating Income Formula
- Net Profit Margin Formula
- EBIDTA Margin
- Degree of Operating Leverage Formula (DOL)
- NOPAT Formula
- OIBDA
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Capital Employed (ROCE)
- Return on Invested Capital (ROIC)
- Return on Sales
- ROIC Formula (Return on Invested Capital)
- Return on Investment Formula (ROI)
- ROIC vs ROCE
- ROE vs ROA
- CFROI
- Cash on Cash Return
- Return on Total Assets (ROA)
- Return on Average Capital Employed
- Capital employed Employed
- Return on Average Assets (ROAA)
- Return on Average Equity (ROAE)
- Return on Assets Formula
- Return on Equity Formula
- DuPont Formula
- Net Interest Margin Formula
- Earnings Per Share Formula
- Diluted EPS Formula
- Contribution Margin Formula
- Unit Contribution Margin
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- EBITDAR
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Variable Costing Formula
- Capitalization Rate
- Cap Rate Formula
- Comparative Income Statement
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula

- Efficiency Ratios
- Dividend Ratios
- Debt Ratios
- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Asset Ratio Formula
- Coverage Ratio
- Coverage Ratio Formula
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Capitalization Ratio
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- DSCR Formula (Debt service coverage ratio)
- Financial Leverage Ratio
- Financial Leverage Formula
- Degree of Financial Leverage Formula
- Net Debt Formula
- Leverage Ratios
- Leverage Ratios Formula
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio
- Solvency Ratio Formula

## What is Dividend Growth Rate?

Dividend Growth Rate refers to the growth rate (in term of percentage) of the dividend of a particular company realized during a certain period of time. Although it is usually calculated on an annual basis, it can also be calculated on a quarterly or monthly basis if required.

It can be calculated (using arithmetic mean) by adding the available historical growth rates and then dividing the result by the number of corresponding periods.

Dividend Growth Rate formula (using ArithmeticMean ) is represented as,

**Dividend Growth Rate Formula (using Arithmetic Mean)= (G**

_{1}+ G_{2}+ …….. + G_{n}) / nwhere

- G
_{i}= Dividend growth in i^{th}year, - n = No. of periods

It can be calculated using the compounded growth rate method by using the initial dividend and final dividend and the number of periods in between the dividends.

Dividend Growth (using compounded growth rate method) is represented as,

**Dividend Growth Rate Formula (using Compounded Growth) = (D**

_{n}/ D_{0})^{1/n}– 1where

- D
_{n}= Final dividend - D
_{0}= Initial dividend - n = No. of periods

### Explanation of the Dividend Growth Rate Formula

The formula for dividend growth rate (arithmetic mean) can be computed by using the following steps:

**Step 1:** Firstly, gather all the historical dividend growth of the company and add up all of them. It will be easily available from the annual report of the company. The periodic dividend growth can be calculated by dividing the current periodic dividend D_{i} by the last periodic dividend D_{i-1} and subtract one from the result and then expressed in terms of percentage. It is denoted by G_{i}.

**G _{i} = (D_{i} / D_{i-1)} – 1**

**Step 2:** Next, determine the number of periods for which the historical growth rates have been collected and it is denoted by n.

**Step 3:** Finally, the formula for dividend growth rate can be derived by dividing the sum of historical dividend growths by the no. of periods as shown below.

4.8 (388 ratings)

**Dividend Growth Rate = (G _{1} + G_{2} + …….. + G_{n}) / n**

The formula for dividend growth rate (compounded method)calculation can be done by using the following steps:

**Step 1:** Firstly, determine the initial dividend from the annual report of the past and the final dividend from the recent annual report. The initial dividend and final dividend is denoted by D_{0} and D_{n} respectively.

**Step 2:** Next, determine the number of periods between the initial dividend period and the recent dividend period and it is denoted by n.

**Step 3:** Finally, dividend growth calculation can be derived by dividing the final dividend by the initial dividend and then raising the result to the power of reciprocal of the no. of periods and subtracting one from it as shown below.

**Dividend Growth Rate Formula = (D _{n} / D_{0})^{1/n} – 1**

### Example of Dividend Growth Rate Formula (with Excel Template)

**Let us take the example of Apple Inc.’s dividend history during the last five financial years starting from 2014.**

Given,

- Final dividend, D
_{2018}= $2.72 - Initial dividend, D
_{2014}= $1.82 - No. of periods, n = 2018 – 2014 = 4 years

Determine the dividend growth based on the given information using the following methods.

- Arithmetic mean method
- Compounded growth method

Below is data for calculation of Dividend Growth (using the arithmetic mean & compounded growth method) of Apple Inc.’s

As per question,

- Dividend growth in 2015, G
_{2015}= [($1.98 / $1.82) – 1] * 100% = 8.79% - Dividend growth in 2016, G
_{2016}= [($2.18 / $1.98) – 1] * 100% = 10.10% - Dividend growth in 2017, G
_{2017}= [($2.40 / $2.18) – 1] * 100% = 10.09% - Dividend growth in 2018, G
_{2018}= [($2.72 / $2.40) – 1] * 100% = 13.33%

Now, no. of periods, n = 2018 – 2014

= 4 years

Therefore, the annualized dividend growth using arithmetic mean method can be calculated as,

Dividend Growth Rate Formula = (G_{2015} + G_{2016} + G_{2017} + G_{2018}) / n

= (8.79% + 10.10% + 10.09% + 13.33%) / 4

Dividend Growth = **10.58%**

Therefore, the annualized dividend growth rate calculation using the compounded growth method will be

Dividend Growth Rate Formula = [(D_{2018} / D_{2014})^{1/n} – 1] * 100%

= [($2.72 / $1.82)^{1/4} – 1] * 100%

Dividend Growth (Compounded Growth)= **10.57%**

From the case of Apple Inc.’s dividend history, it can be seen that the dividend growth rate calculated by either of the two methods gives approximately the same results.

### Relevance and Uses of Dividend Growth Rate Formula

From an investor’s perspective, it is important to understand this concept to assess earning from a stock investment. For instance, a strong dividend growth history could indicate likely future dividend growth, which is a sign of long-term profitability for the stock. Further, a financial user can use any interval for the dividend growth calculation. The Dividend Growth Rate Formula concept is also essential because it is primarily used in the dividend discount model which finds extensive application in the determination of security pricing.

You can download this Dividend Growth Rate Formula Excel Template here – Dividend Growth Rate Formula Excel Template

### Recommended Articles

This has been a guide to what is Dividend Growth Rate?. Here we discuss how to calculate Dividend Growth Rate using the arithmetic mean and compounded growth rate method along with examples and downloadable excel sheet. You can learn more about accounting from the following articles –

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