How the Dividend Growth (CAGR) Formula Works
To find the smooth yearly growth rate between an older dividend per share (`D_start`) and today’s dividend per share (`D_current`) over `N` years, we use the Compound Annual Growth Rate formula:
Dividend CAGR (%) = [(D_current ÷ D_start)^(1 ÷ N) - 1] × 100Once we have that annual growth rate `g`, we project the future dividend per share after `Y` forward years:
Future Dividend Per Share = D_current × (1 + g)^YWorked Example: A Dividend That Grew From $1.20 to $2.40 in 10 Years
Suppose you own **250 shares** of a company that paid **$1.20 per share** 10 years ago and pays **$2.40 per share** today:
- Divide current by starting dividend: `$2.40 ÷ $1.20 = 2.00` (the payout doubled).
- Find the 10-year CAGR: `2.00^(1 ÷ 10) - 1 = 0.07177`, or **7.18% per year**.
- Project 10 years forward: If the company keeps raising its dividend at `7.18%` per year for another 10 years, the dividend per share will double again to **$4.80 per share**.
- Check your annual income: On your `250 shares`, your annual paycheck rises from **$600.00 today** to **$1,200.00 in Year 10**, even before counting any extra shares from DRIP.
To see how fast your income doubles when you combine annual dividend raises with reinvested shares, use our dividend doubling calculator.
How $1,000 of Dividend Income Grows Over Time
This table shows how **$1,000 in starting annual dividend income** grows over 5, 10, 15, and 20 years from dividend-per-share raises alone (no DRIP):
| Annual Dividend Growth | Doubling Time | Year 5 Income | Year 10 Income | Year 15 Income | Year 20 Income |
|---|---|---|---|---|---|
| 4% / yr | 18.0 yrs | $1,217 | $1,480 | $1,801 | $2,191 |
| 6% / yr | 12.0 yrs | $1,338 | $1,791 | $2,397 | $3,207 |
| 8% / yr | 9.0 yrs | $1,469 | $2,159 | $3,172 | $4,661 |
| 10% / yr | 7.2 yrs | $1,611 | $2,594 | $4,177 | $6,727 |
Common Mistakes When Projecting Dividend Growth
- Projecting a 15% growth rate for 30 years: Very few companies can grow their dividend at 15% a year for decades. If a company’s payout ratio is already above 65%, future dividend growth will have to match its earnings growth (usually 4% to 8%).
- Looking only at 1-year dividend growth: One big dividend hike after a boom year can skew a 1-year average. Check 5-year and 10-year dividend CAGR to see how management acted across a full business cycle.
- Ignoring starting yield: A stock yielding 0.5% that grows its dividend by 12% a year still pays very little cash for the first 15 years. Compare total income in our yield on cost calculator.