# divident growth rate and earnings growth rate

can we interuse them? In Schweser practice book 1, Mock 1, 35: they use divident growth rate 6% as earnings growth rate…

They are not the same…but if they don’t say specifically, assume they are the same.

If it is a perpetual stable growth rate, then they should definitely be the same.

Be careful of this come exam day… just because a “growth rate” is given in a vignette, that does not mean it’s the “sustainable growth rate”. Make sure if at all possible to calculate the sustainable growth rate yourself. CFAI has pulled this trickery in the past.

Hopefully, you will know. If you don’t see a growth rate, you have to calculate it using g=bROE. Else, just take what they give you.

Dreary - Last year on the sample they had a question which gave you a growth rate but also enough information to compute ‘g’. If you used the growth rate given it was wrong because this was not the “sustainable” growth rate.

thanks for the tip…I know they can do all kinds of nasty things on us.

dividend growth rate and earnings growth rate are the same if the dividend payout ratio (or retention ratio) is constant. Generally, if you are using g = ROE*b, you are going to assume that b is constant, hence payouts are constant, hence dividend growth = earnings growth.