the dividend growth rate is the annualized percentage rate of growth that a particular stock s dividend undergoes over a period of time many mature companies seek to increase the dividends paid to their investors on a regular basis knowing the dividend growth rate is a key input for stock valuation models known as dividend discount models 
understanding the dividend growth ratebeing able to calculate the dividend growth rate is necessary for using the dividend discount model the dividend discount model is a type of security pricing model the dividend discount model assumes that the estimated future dividends discounted by the excess of internal growth over the company s estimated dividend growth rate determine a given stock s price if the dividend discount model procedure results in a higher number than the current price of a company s shares the model considers the stock undervalued investors who use the dividend discount model believe that by estimating the expected value of cash flow in the future they can find the intrinsic value of a specific stock a history of strong dividend growth could mean future dividend growth is likely which can signal long term profitability for a given company when an investor calculates the dividend growth rate they can use any interval of time they wish they may also calculate the dividend growth rate using the least squares method or by simply taking a simple annualized figure over the time period 