Dividend growth rate is a metric used to measure how fast a company’s dividends per share (DPS) is increasing. It is calculated by taking the latest dividend and dividing it by the previous dividend and multiplying it by 100. It provides an investor with important information regarding the stability and sustainability of a company’s dividends.

For example, if a company’s DPS was $1 a year ago and has now increased to $1.10, the dividend growth rate is 10%. This indicates that the company is increasing its dividend consistently.

The dividend growth rate is very important in determining the intrinsic value of a company’s stock. A higher dividend growth rate represents a more lucrative investment opportunity to some investors because it suggests that a company is doing well and is likely to pay larger dividends in the future. This can lead to increased returns and a higher stock price.

Another way to analyze dividend growth rate is to look at the company’s historical dividend payments. If the company has maintained a consistent dividend growth rate over several years, it likely has good long-term profitability and is an attractive stock.

On the other hand, if the dividend growth rate has become less consistent over time or has started to decrease, it could signal that the company is facing difficulties or is unable to fund its dividends from operations. This can be a red flag that should be researched further before investing.

Overall, the dividend growth rate helps investors understand the sustainability and stability of a company’s dividend payments. It is important to review the dividend growth rate when analyzing a stock, as it can be used to determine the intrinsic value of the stock and its potential as an investment.