Dividend Growth Rate
Dividend growth rate is the annualized percentage increase in an ETF's or stock's dividend payments over a specific period, typically measured over 3, 5, or 10 years.
Why FIRE Investors Care
For investors planning to live off dividends, the growth rate is arguably more important than the current yield. A fund yielding 2% today but growing dividends at 10% per year will produce more income in 10 years than a fund yielding 5% with no growth.
SCHD, for example, has a 10-year dividend growth rate of roughly 10.6% annually. That means its dividends have roughly doubled every 7 years. An investor who bought SCHD a decade ago is earning significantly more income on their original investment than the current yield suggests.
How It's Calculated
Dividend growth rate uses the CAGR (compound annual growth rate) formula applied to dividend payments. Take the most recent annual dividend, divide by the annual dividend from X years ago, raise to the power of (1/X), and subtract 1.
The Catch
Past dividend growth doesn't guarantee future growth. Economic downturns, industry shifts, and fund reconstitution can all slow or reverse dividend growth. This is why Fire Tools shows "Track Record": historical facts about what happened, not predictions about what will happen.
Related Terms
DRIP (Dividend Reinvestment Plan)
DRIP means automatically reinvesting your dividend payments to purchase additional shares of the same investment, instead of receiving the cash.
Yield on Cost
Yield on cost is your annual dividend income divided by your original purchase price, not the current market price. It shows the yield on the money you actually invested.
Return of Capital (ROC)
Return of capital is a distribution from an ETF or fund that isn't earnings or income. It's your own invested money being paid back to you. It reduces your cost basis rather than representing a real return.
This tool is for educational and informational purposes only. It does not constitute financial advice. Past performance does not guarantee future results. Consult a qualified financial advisor for personalized advice.