Dividend Growth Rate

Dividend growth rate or simply known as DGR is nothing but the growth rate of a company by the percentage that is achieved and earned by the company as a whole within a certain period of timeframe. Mostly and generally, the Dividend Growth rate is calculated annually or yearly basis. However, it also depends on the company to decide if they want to calculate on a quarterly or even monthly basis. Also, the companies may decide to increase their dividend pay-out for their shareholders as time passes and the company gains more and more profits.
Furtherly, a company that has a history of solid growth of dividends indicates that there is likely to be a good chance of future dividends growth. This predictability of future dividends can also highlight having a long-term gain and profitability. Hence, dividend rates can be an extremely significant metric to let yourself know if you are investing in the right company and that you can expect gains out of it. Let's read next in more detail about how the dividend growth rate works and help you to have a better understanding of it.

An individual trader or investor needs to know and learn how the Dividend growth rate is calculated because it then in return helps them to know about how to use the dividend discount model. You may ask now what is the dividend discount model? So, the dividend discount model is a kind of security-pricing model. Now, this model assumes and predicts that the company's current share price is as equal as the company's future dividends of the net present value. The dividend discount model is also used to know the value of stocks.
According to this model, the investor or the trader needs to calculate by deducting the excess internal growth rate of the company. This excess growth rate means the maximum growth rate which can be possibly earned by a company without having to resort to having any external financial aid. This internal Growth rate should be deducted from the estimated dividend growth rate to know the exact price of a certain stock. If by chance, any stock's current price is lesser or lower than the calculated price with the help of this model, then as this model states, the price of the stock is undervalued.
The mathematical formula that is associated with the dividend growth rate and dividend discount model is P0 = D1/r-g and in this equation, P0 is the current stock price of the company and D1 is the dividends of the next year and r and g implies the cost of company's equity and the dividend growth rate respectively.

By far we have learned what is Dividend growth rate is and how does its whole concept work. We have also established the fact that it is an important analysis and should be done for better investment avenues. Let's read further now to know what are the benefits of analyzing and assessing dividend growth rate -

Analysis Of All The Earnings From Stocks - The concept of dividend growth rate analysis helps the investors and the traders to assess and calculate how much gains and profits they can respect from investing in a certain company and its stock. If it's seen that the company has a strong dividend growth and it's been so over the years, that would mostly point towards a similar dividend growth rate in the future too. This, in return, would also imply getting good long-term profitability from your investments.

Predicting The Intrinsic Value Of Stocks - Once you have figured out how to calculate the dividend growth rate of a company over the years, you can also then learn to predict and determine the intrinsic value of the stocks. You can also compare it to the current market value by using exactly the dividend model of stock valuation.

Investors Have The Freedom To Calculate The Dividend Growth Rate For Any Period As They Desire - The mathematical formulas can be used to calculate not only the annual dividend growth rate but also the investors have the freedom to calculate the dividends for any intervals and any time frame for a however long period as they deem fit for investing in their investments.

Thus, it's basic common knowledge that the share market might be a slightly unpredictable and risky place, especially for beginners and new traders. That's is why it should be imperative for any investor or the trader to understand the concepts and the connection that overlies the companies and their shares and how long-term profitability can be part of their investments. Free Demat and trading accounts and every other benefit that comes should be marked by importance.