Explain how supernormal growth of dividends is possible, but only in the short-term.

Supernormal growth is often associated with young, rapidly growing firms which have not previously paid a dividend. When these firms begin to pay dividends, the amount is often small. Therefore, it only requires a small increase in the dividend amount to equate to a large increase in percentage terms. As the dividend amount increases, the same percentage increase would cost significantly more in dollar terms. For example, a $0.05 increase to a $0.10 dividend is a 50% increase. For a $2.00 dividend to increase by 50%, the dividend amount would have to rise by $1.00. It is a lot easier to afford a $0.05 increase than a $1.00 increase. Thus, firms cannot afford too many years of supernormal growth.