Track how fast your dividend income is growing. The single best predictor of future income and total returns.
Compound Annual Growth Rate for dividends
DGR = (Ending Dividend / Beginning Dividend)^(1/Years) - 1
Ending Dividend
Most recent annual dividend per share
Beginning Dividend
Annual dividend at start of period
Years
Number of years in the measurement period
Quick Example: Johnson & Johnson
Look up the annual dividend per share for your starting year and ending year. Use the total annual amount, not a single quarterly payment. You can find this on the company's investor relations page or financial sites like Yahoo Finance.
Tip: Use 5 or 10-year periods
Short periods (1-2 years) can be misleading due to one-time fluctuations. Five and ten-year CAGR gives a more reliable picture of the trend.
This gives you the total growth multiple. If the result is 1.55, the dividend has grown 55% over the total period.
JNJ example: $4.96 / $3.20 = 1.55 (55% total growth)
Raise the growth multiple to the power of (1 / number of years). This converts total growth into an annualized rate. Then subtract 1 and multiply by 100 for a percentage.
JNJ example: 1.55^(1/10) = 1.045 - 1 = 0.045 = 4.5%/year
Annualized CAGR for popular dividend stocks
| Company | 2016 Div | 2026 Div | 10-Yr DGR | Category |
|---|---|---|---|---|
| Visa (V) | $0.56 | $2.36 | 15.4% | Fast Grower |
| Microsoft (MSFT) | $1.44 | $3.32 | 8.7% | Fast Grower |
| AbbVie (ABBV) | $2.28 | $6.20 | 10.5% | Fast Grower |
| PepsiCo (PEP) | $2.96 | $5.42 | 6.2% | Moderate |
| Coca-Cola (KO) | $1.40 | $1.94 | 3.3% | Moderate |
| AT&T (T) | $1.96 | $1.11 | -5.5% | Cut |
Yield on cost is the dividend yield based on your original purchase price. A stock with a 2.5% starting yield and 10% annual growth becomes a 6.5% yield-on-cost in just 10 years, and 16.9% in 20 years.
Example: Buy at $100, initial dividend $2.50 (2.5% yield). At 10% growth, after 10 years the dividend is $6.48 -- that is a 6.5% yield on your $100 cost.
Historically, stocks with consistent dividend growth outperform those with flat or declining dividends. Companies that grow dividends 7-10% annually tend to also deliver 10-12% total returns, because dividend increases signal management confidence in future earnings.
With inflation running 3-4%, a stock growing dividends at 7%+ means your purchasing power increases every year. A high-yield stock with 0% growth loses real value annually. Growth rate matters more than starting yield for investors with a 10+ year horizon.