# Calculate growth rate of dividends

We have six end year dividends:

2004: \$0.14

2005: \$0.15

2006: \$0.17

2007: \$0.17

2008: \$0.19

2009: \$0.22

The book asks: “What is the annual growth rate of dividends over the period from 2004-2009?”

I wrote down: (0.22 / 0.14)^1/6 - 1 = 7.83%.

The book says that the answer is (0.22 / 0.14)^1/5 - 1 = 9.46%.

Why do we put down 5 for the number of periods as opposed to 6? I see this problem in a similar light as a time weighted ROR problem where you find the HPR then to find the compound annual rate of return, you add 1 to every percent, multiply them together then raise to 1/the number of periods. Of course, that involves percentages whereas this involves actual dollar figures, but I am not sure if that has any affect on the outcome of this problem.

Thanks.

From 2004 to 2005 is the first period.

From 2005 to 2006 is the second period.

From 2006 to 2007 is the third period.

From 2007 to 2008 is the fourth period.

From 2008 to 2009 is the fifth period.

Five periods.

There are 5 periods not 6.2005 from 2004, 2006 from 2005 and so on.

This dividend increased form 0.14 to 0.22. The 0.14 is not the 1st increase, it is the starting amount.

If you convert it to HPY-s like you are suggesting how many HPY-s you will get? 5 or 6? 5.

Sorry S 2000 I opened the comment box but then switched to excel to verify my thinking before pushing the ‘add comment’ so I did not see you responded already. 