A corporation may pay dividends out of its earnings to investors during the year, although not at a set rate. Investors will then calculate the dividend growth rate to see how much the dividends are growing or shrinking over a period of time. Usually, if dividends are growing, the company is doing well. To calculate the dividend growth rate, the investor needs dividend information that all corporations must disclose.
Determine the dividends per share from the beginning of the period examined and the dividends per share from the end of the period. For example, an investor wants to know a firm's dividend growth rate from Year 1 to Year 3. In Year 1, the firm paid dividends of $1.25 per share. In Year 3, the firm paid dividends of $1.68 per share.
Subtract the latest dividends per share from the older dividends per share. In our example, $1.68 minus $1.25 equals $0.43. This is the change in dividends.
Divide the change in dividends by the older dividends per share to calculate the dividend growth rate. In our example, $0.43 divided by $1.25 equals 34.4 percent.
Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.