How to Calculate Dividend Growth Rate and Analyze Long-Term Investment Value: The Secret Strategy of Wealthy Investors

After work, I grab a cup of coffee and sit down at my desk.
I open my stock portfolio and, as usual, it’s a mix of red and blue.
But I’m not shaken by the day’s ups and downs.
The reason is simple — I base my long-term investment strategy on the dividend growth rate.

Table of Contents

1. What is the Dividend Growth Rate?

The Dividend Growth Rate (DGR) measures how much a company’s dividend payouts to shareholders increase each year.
For example, if a company paid ₩1,000 per share last year and ₩1,100 this year, its dividend growth rate is 10%.

The formula is straightforward:

Dividend Growth Rate (%) = [(This Year’s Dividend ÷ Last Year’s Dividend) - 1] × 100

2. Why Does the Dividend Growth Rate Matter?

For long-term investors, finding companies whose dividends grow steadily every year is essential.
Here’s why:

Compounding effect: Rising dividends accelerate returns over time
Financial stability: Consistent dividend growth signals a healthy business
Inflation protection: Growing payouts help preserve purchasing power

When I first started investing, I focused solely on dividend yield.
Over time, I realized something important:
“A company that consistently increases its dividends is a true golden goose.”

3. Long-Term Value Analysis Example

Let’s say there’s a company with a 4% dividend yield and an annual dividend growth rate of 8%.
If you held the stock for 10 years, here’s what would happen:

Year 1: 4% yield
Year 5: ~5.87% yield
Year 10: ~8.63% yield

Add potential stock price appreciation, and the power of compounding becomes extraordinary.

4. How to Find Companies with High Dividend Growth Rates

Look for companies with 10+ years of consecutive dividend increases
Check for low debt ratios and strong cash flow
Ensure EPS (Earnings Per Share) has been growing steadily
Choose companies that maintain dividends even during economic downturns

Personally, I hold a mix of S&P 500 dividend growth ETFs and high-quality domestic dividend stocks.
Every time a dividend hits my account, I’m reminded:
“This is money I earned without lifting a finger.”

5. Final Thoughts – The Dividend Growth Rate as a Weapon Against Time

Chasing quick gains can be exciting, but it often comes with high volatility and stress.
On the other hand, investing in companies with consistently high dividend growth rates allows your wealth to compound steadily, regardless of short-term market swings.

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