Dividend Growth 5yr = The geometric average dividend growth rate over the past 5 years.

The Dividend growth rate is shown as a percentage, for example 3.323%.#

The geometric average gives you the typical value of dividend growth over the period by using the product of their values (as opposed to the arithmetic average which uses their sum).

The geometric average is defined as the nth root of the product of n numbers.

For example, suppose a company paid the following dividends:

Year 1 = 1.0

Year 2 = 1.1

Year 3 = 0.9

Year 4 = 1.3

This means the company had dividend growth of 10% the first year, -18.2% the second year, and +33.3% the third year.

What is its average rate of return?

It is not the arithmetic mean of 8.4%, because what these numbers mean is that on the first year the dividend was multiplied (not added to) by 1.10, in the second year it was multiplied by 0.82, and the third year it was multiplied by 1.33. The relevant quantity is the geometric mean of these three numbers which is 6.3%.

We use the geometric mean because it penalises declined in the dividend much more than the arithmetic mean does.