Friday, February 12, 2016
Dividend Growth Investing at Work - Pouring Out Larger Dividends!
Something I love about dividend growth investing is that each month I get to hear about companies I own deciding to pay me more money in dividends. Just for owning a small portion of said companies. Not going and doing R&D for new products or technology. Not selling any products. Not managing any employees or inventory. Not making sales calls. All I had to do was have the foresight to invest some of my savings in excellent companies. That's dividend growth investing at work! I mean who doesn't like getting a raise for doing nothing?
My expected dividend increases for the month are largely back-loaded, but PepsiCo (PEP) announced an increases yesterday. What great news considering how crazy the markets were yesterday. When the markets are going haywire I just look back at my dividends to see how they keep rising organically and keep providing positive cash flow.
PepsiCo is a bit of an oddball with their dividends. In the first week of February they announced their next dividend payment and it was the same. However, yesterday they already announced the payment amount by announcing an increase but have yet to set the official important dates. It's just a weird situation where the dividend has been increased before the previous payment has been paid.
Let's dig into the numbers. Yesterday the Board of Directors at PepsiCo (PEP) approved an increase to their quarterly dividend. The previous payment was $0.7025 and the new payment is $0.7525. That's a solid 7.1% increase for just one year. They plan to return $7 B to shareholders throughout the year through dividends and share buybacks. This increase marks the 44th consecutive year of increases putting them well onto the Dividend Champions list. The current yield on PepsiCo shares stands at 3.11%.
Since I own 61.554 shares of PepsiCo in my FI Portfolio this dividend increase grew my forward 12-month dividends by $12.31. This is the third dividend increase I've received from PepsiCo since initiating a position in 2013 with a cumulative increase of 32.6% to my dividends. I also own 1.7972 more shares of PepsiCo in my Loyal3 portfolio which increased my income by $0.36.
The average analyst estimate for earnings for PepsiCo for fiscal year 2016 stands at $4.74 so the new dividend rate represents a forward payout ratio of 63.5%. Based on the TTM free cash flow and the current diluted weighted shares outstanding the new dividend represents a 57.7% free cash flow payout ratio.
You can check out my Valuation Analysis on PepsiCo from July over at Seeking Alpha. I hope to get a full analysis on PepsiCo completed over the next few weeks.
My forward dividends increased by $12.31 with me doing nothing. That's right, absolutely nothing to contribute to their operations well other than purchase some of their products. Based on my portfolio's current yield of 3.37% this raise is like I invested an extra $365 in capital. Except that I didn't! One of the companies I own just decided to send more of the profits my way. That's how you can eventually reach the crossover point where your dividends received exceed your expenses. That's DIVIDEND GROWTH INVESTING AT WORK! That's the beauty of the dividend growth investing strategy because you build up your dividends through fresh capital investment as well dividend increases from the companies you own.
I've now received 5 dividend increases so far this year adding $32.81 to my forward 12-month dividends.
February looks to be a solid month for dividend increases with 4 more of my holdings expected to announce raises.
My FI Portfolio's forward-12 month dividends are up to $5,525.15 and including my Loyal3 portfolio's forward dividends of $61.61 brings my total taxable account forward dividends to $5,586.76.
Do you own shares of PepsiCo? What do you think about its current valuation?
Image courtesy of digitalart on FreeDigitalPhotos.net.