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.

12 comments:

  1. Congrats on the pay raise, JC. Already at 5 raises this year...way to go!

    R2R

    ReplyDelete
    Replies
    1. R2R,

      5 raises thus far and many more likely to be announced the rest of this year. I'm looking forward to seeing what BNS and TD do after the rout the CDN economy has taken so far.

      Thanks for stopping by!

      Delete
  2. PIP,

    That's great news for the portfolios. There really is nothing like a well deserved "raise" at work or in this case, your portfolios! I'm sad I haven't been able to acquire any PEP just yet but it is on my buy list. If it drops to the low 90's, I'll be grabbing some!

    Thanks for the update,

    -Dividend Monster

    ReplyDelete
    Replies
    1. Dividend Monster,

      I think now is a decent time to add PEP if you want to get it in your portfolio. It's definitely not a steal at these levels but I'd consider it to be in the realm of "fair value". It'll definitely be a defensive and stable holding for you and I like their diversification with snacks and beverages. The low $90's would be a great price to get in at.

      Thanks for stopping by!

      Delete
  3. JC,

    Nice with 5 increases, I had not seen this one yet, nice to know as my Loyal3 PEP will now give me some extra cash too. I have 6 increases so far, about half of which are realized, and this one makes 7. Looking like a good year.

    - Gremlin

    ReplyDelete
    Replies
    1. Gremlin,

      Yeah PEP is weird in that the dividend gets raised but the increased payout is the 2nd payment from the announcement. It's very odd but as long as they keep coming that's fine by me. 7 increases for you thus far is great.

      Thanks for stopping by!

      Delete
  4. Gotta love those increases. I've held PEP for several years and it has been very good to my wife and I. One of my favorite holdings to date. They are a little quirky with the dividend announcements well ahead of the actual increase which usually takes place mid-year. I suppose if it makes them happy, it makes me happy. If income goes up, it matters not when they announce.

    I feel like PEP is a little on the expensive side right now, but so is most everything IMO. Since it is already a fairly large holding for us, I can be comfortable waiting for a better price. Thanks for your article.

    ReplyDelete
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    1. Gravy,

      No complaints on my end regarding their increase schedule. UTX is another odd ball where they increase after 5 payouts instead of the traditional 4. PEP has been a solid holding for us as well.

      I'd say PEP is on the higher side of fair value. It's definitely not a screaming buy but there's worse places you could invest capital right now if you want a really high likelihood of capital preservation as well as continued dividend increases. The EPS look depressed mainly due to FX reasons from the strong USD but look much better on a currency neutral basis.

      Thanks for stopping by!

      Delete
  5. I foolishly sold out of Pepsi a couple years ago, after successfully trading it a few times. I'll always regret this one. Have a great weekend buddy!
    -Bryan

    ReplyDelete
    Replies
    1. Bryan,

      PEP has been an excellent and consistent holding for us. I'm sure you'll be able to accumulate a long holding in it in the future. Mr. Market likes to give us plenty of chances to make good on lost opportunities.

      Thanks for stopping by!

      Delete
  6. That's another solid raise from Pepsi. I'd love to buy more but the price has been stubborn here. The markets have tanked since the new year but PEP has traded sideways for the most part.

    ReplyDelete
    Replies
    1. Many of the consumer staples companies have had had their share prices hold up or even increase throughout the market turmoil so far this year. It's a shame but kind of expected given their "steady eddie" nature year in and year out.

      Thanks for stopping by!

      Delete