Dividend investors often view a history of increasing dividends as a positive sign for a stock. Because a dividend reduction might hurt a company’s stock price, a company typically increases its dividends only when it expects to maintain the higher payout. When you own or consider buying a dividend-paying stock, calculate its dividend growth rate to gauge the potential growth of future dividends. This rate is the average percentage the company increased its dividend annually over a historical time period. A strong dividend growth rate doesn’t guarantee a profitable investment, but it gives you an idea of the company’s track record.

#### Step 1

Visit any financial website that provides stock quotes. Type the stock’s ticker symbol or company name into the appropriate box and click the adjacent button to bring up its quote.

#### Step 2

Click “Dividend History” or a similar link to bring up the stock’s past dividend payments. If a website doesn’t have a dividend history section, it might report past dividend payments in the historical prices section.

#### Step 3

Find the stock’s dividend payments at the beginning and end of the period for which you want to calculate the dividend growth rate. This period can be any length of time, such as three years or 10 years, but should end with the most recent dividend payment. For example, assume you want to calculate the dividend growth rate for the past three years. Assume the stock paid a 20 cent quarterly dividend three years ago and paid a 30 cent dividend last quarter.

#### Step 4

Divide the dividend at the end of the period by the beginning dividend. In this example, divide 30 cents by 20 cents, or $0.30 by $0.20, to get 1.5.

#### Step 5

Take the Nth root of your result, where N represents the number of years of the growth period. In this example, take the third root of 1.5 to get 1.145.

#### Step 6

Subtract 1 from your result and multiply that result by 100 to calculate the growth rate as a percentage. Concluding the example, subtract 1 from 1.145 to get 0.145. Multiply 0.145 by 100 to get a 14.5 percent growth rate. This means the company increased its dividend an average of 14.5 percent per year over the last three years.

#### Tips

- Compare a stock’s dividend growth rate with those of other stocks in its industry to see how it stacks up against its peers.
- Always review a company’s financials and future outlook when assessing its ability to pay future dividends. A company is not obligated to pay dividends and can reduce or suspend them at any time.

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#### Photo Credits

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