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Dividend CAGR explained

Updated: Mar 20

The target of this blog is to define what Dividend CAGR is, but also to describe its limitations and how to use it efficiently.


The Dividend Compounded Annual Growth Rate (CAGR) is the average annual rate of return that would be required for a dividend to grow from its beginning value to its ending value. This is formally defined by:

where n is the number of years, ds is the dividend amount on the first year and de the dividend amount of the last year.



It is essentially a number that describes the rate at which a dividend would have grown if it had grown at the same rate every year. In reality, this sort of performance is very rare. CAGR is used to compare more easily the growth rate of dividends between stocks.


Because CAGR is smoothing the variations over the years, it may hide some bad years where the dividend did not increase, or even decreased. The CAGR would still have a satisfying value, if the dividend was sharply increased on other years.


Let us take two stocks to clarify the point above. We will calculate the 10-year Dividend CAGR from 2010 to 2019 included. The 10-year Dividend CAGR of Flowserve (ticker FLS) is 7.75%. The one of Kimberly-Clark (ticker KMB) is only 5%. Looking only at this parameter alone, a novice investor would wrongly prefer a better growing dividend, like FLS over KMB.


But a guarantee of dividend safety is its continuity and stability. If we compare the year-over-year dividend growth, we see a much more stable dividend increase of KMB over FLS. The chart shows that FLS had a stable dividend increase until 2016, but then thing became unstable.



In order to understand what happened in more details, we can look at the FLS dividend distributed from 2016 to 2019.

The omitted dividend in Q4 2017 was just postponed to Q1 2018, and again, the same happened in Q4 2018. Not a big disaster. But the most important thing is that the dividend in fact did not increase at all from 2016 to 2019. So how is it that the Dividend CAGR is at 7.75%? This is because of the very high dividend increase that occurred between 2010 and 2016, as can be seen for the chart below. Indeed, the dividend increased by almost 100% in just 6 years!


The 10-year Dividend CAGR could not show us that the dividend increase was extremely high in the first 6 years, followed by no increase at all in the last 4 years. Thanks to the Dividend Growth Chart giving the year-over-year dividend increase, we are able to identify the lack of stability of dividend increase, that the CAGR has hidden. Always prefer charts showing trends over single parameters that claim to include all the information needed. This is our advice for making sound investment decisions.


Check out our tools that generate charts for easy, effective and deep dividend stock comparisons:

- Dividend Cash Amount Comparison

- Dividend Growth Comparison

- Dividend Yield Comparison

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