Dividend Growth Rate

The Dividend Growth Rate is the annualised percentage rate at which a company increases its dividend payment per share over time. It is a key metric for income-focused investors and is a central input in the Gordon Growth Model (Dividend Discount Model), where a stock's intrinsic value is estimated as: Intrinsic Value = Next Year's Dividend ÷ (Required Rate of Return – Dividend Growth Rate). A consistently high dividend growth rate signals strong and growing free cash flow, confidence in future earnings, and management's commitment to rewarding shareholders. In India, companies in sectors like FMCG, IT services, and private sector banks have historically demonstrated steady dividend growth. Declining dividend growth — or a dividend cut — is often an early signal of deteriorating financial health.