Definition:

The 5-year Dividends per Share Growth Rate measures the annualized percentage growth rate of a company's dividends per share over a five-year period. It provides insight into how a company's dividend payouts have increased over time.

Formula:

((Dividend per Share in Year 5 / Dividend per Share in Year 0) ^ (1/5)) - 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 that a company is consistently increasing its dividend payouts, which can be a sign of strong financial performance and shareholder value creation.

Limitations:

This metric does not account for changes in the company's overall financial health or market conditions. It also does not consider dividend cuts or suspensions that may have occurred during the period. Additionally, it may not be relevant for companies that do not pay dividends.

Applies to:

This metric is most applicable to mature industries where companies are expected to pay regular dividends, such as utilities, consumer staples, and financial services.

Doesn't apply to:

It does not apply well to industries where companies typically reinvest profits into growth rather than paying dividends, such as technology or biotech sectors. These industries often prioritize reinvestment over dividend payouts.

Summary:

The 5-year Dividends per Share Growth Rate is a useful metric for evaluating the historical growth of a company's dividend payouts. It is particularly relevant for investors seeking income from dividend-paying stocks in mature industries. However, it has limitations and may not be applicable to all sectors, especially those focused on growth and reinvestment rather than dividend distribution.