Definition:

The 3-year Dividends per Share Growth Rate measures the annualized percentage growth in dividends paid per share over a three-year period. It provides insights into a company's ability to increase its dividend payouts to shareholders consistently over time.

Formula:

((Dividend per Share in Year 3 / Dividend per Share in Year 0) ^ (1/3)) - 1

How to use the metric:

Investors use this metric to assess the growth potential and financial health of a company. A higher growth rate indicates a company's strong ability to generate cash and return value to shareholders, which can be attractive for income-focused investors.

Limitations:

This metric does not account for changes in the company's payout ratio or external factors affecting dividend policies. It also does not reflect the sustainability of dividend growth, as past performance may not predict future results.

Applies to:

This metric is particularly useful in industries with stable cash flows and mature companies, such as utilities, consumer staples, and telecommunications, where dividend payments are a significant part of shareholder returns.

Doesn't apply to:

It is less applicable to industries with high volatility or companies in growth phases, such as technology or biotech, where reinvestment in the business is prioritized over dividend payouts.

Summary:

The 3-year Dividends per Share Growth Rate is a valuable tool for evaluating a company's dividend growth history and potential. While useful for assessing financial health and shareholder value, it should be used alongside other financial metrics to provide a comprehensive view of a company's performance and prospects.