According to http://www.investopedia.com/terms/d/dividendgrowthrate.asp , this is how I'm going to calculate dividend rate.
Year 1 = $1.00
Year 2 = $1.05
Year 3 = $1.07
Year 4 = $1.11
Year 5 = $1.15
Year 1 Growth Rate = N/A
Year 2 Growth Rate = $1.05 / $1.00 - 1 = 5%
Year 3 Growth Rate = $1.07 / $1.05 - 1 = 1.9%
Year 4 Growth Rate = $1.11 / $1.07 - 1 = 3.74%
Year 5 Growth Rate = $1.15 / $1.11 - 1 = 3.6%
The average of these four annual growth rates is
(5% + 1.9% + 3.74% + 3.6%) / 4 = 3.56%
However, I was wondering, if Year 4 doesn't pay out any dividend, how should the growth rate be calculated?
Year 1 = $1.00
Year 2 = $1.05
Year 3 = $1.07
Year 4 = $0
Year 5 = $1.15
Year 1 Growth Rate = N/A
Year 2 Growth Rate = $1.05 / $1.00 - 1 = 5%
Year 3 Growth Rate = $1.07 / $1.05 - 1 = 1.9%
Year 4 Growth Rate = $0 / $1.07 - 1 = -100%
Year 5 Growth Rate = ?
The average of these four annual growth rates is
?
Is there any generalized equation, to calculate dividend growth rate?
($1 * (1.0356^5)) = 1.191
If you only go from $1.00 to $1.15 in 5 years, that's an average growth rate of 1.028%. (See the formula on the page you linked.)$1 x (1 + 3.56%) ^ 4 = $1.15
? They are using power of 4 year, not power of 5 year.