One of the differences is:
HY investor is looking for significant income (let say 10%) in the first year after stock purchase as well as in the second, third,....., N-th year after stock purchase.
DG investor is looking for small income (let say 3%) in the first year after stock purchase that gradually increase with time, so it can become significant income (let say 10%) in 10-th year and extraordinary high income (let say 25%) in 20-th year after stock purchase.
So during initial N-1 years DGi underperform HYi but after N+1 year DGi outperform HYi if stocks prices are flat.
To some extend HY is similar to value investing while DG is not. HYi chase yield, momentum investors chase stock price increase, while DGi chase dividends increase and often think that in long run stock price will follow dividends.
Using Google's Books Ngram Viewer (books.google.com/ngrams), we can now visualize how terminology have changed over time, by searching a subset of the more than 15 million books that Google has digitized. I did it for "dividend yield" term important for HY and "dividend growth" term important for DG. As you can see from 2 graphs below
Graph for dividend yield
Graph for dividend growth
HY is more popular concept then DG but it seems that DG has more momentum recently. Google restricted data to 2008, it would be interesting to make the same comparison till 2012.
I think some CFA cannot accept DGI because they know that their clients cannot stay calm for N (N~10) years. IMO, DGI is almost life-time commitment, so it is not for all individual investors.
Aug. 6, 2012