Wednesday, October 12, 2016

Dividend Growth Investing at Work - Surprisingly Delicious

Concept of how dividend growth investing works, YUM
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks YUM! Brands for another pay raise!
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?  Dividend growth investing is far from a get rich quick investment strategy, rather you need to remain focused on the long term goal to be successful.

I was browsing around the internet yesterday and happened to notice that I completely missed a divided raise from September.  I overlooked this one because last year the raise came in early October while this one came in late September.  No worries though because that's definitely a welcomed surprise.

On September 26th the Board of Directors at YUM! Brands (YUM) announced a dividend boost.  The dividend was raised from $0.46 to $0.51 which is an excellent 10.9% raise.  YUM! Brands is a Dividend Contender with 13 consecutive years of dividend increases.  Shares currently yield 2.31%.  

Since I own 42.099 shares of YUM in my FI Portfolio this raise increased my forward 12-month dividends by $8.42.  This is the 3rd dividend increase I've received from YUM since initiating a position in mid 2014.  Cumulatively my income from YUM has increased by 38%!!!  According to USInflationCalculator the total rate of inflation over the same time period is just 1.7% so YUM is beating inflation by a cool 36%.


It's hard to tell just looking at the actual dividend payments, but YUM has grown dividends, on a calendar basis, by more than 10% each and every year since initiating a dividend in 2004.  That's an impressive streak that it appears management aims to continue.

dividend growth investing, dividend growth rates, YUM Brands, YUM
YUM! Brands (YUM) Annual Dividend and Rolling Dividend Growth Rates Since 2004
An interactive graphical version of the previous chart can be found here.

The dividend still looks safe; however, the payout ratios have climbed significantly since 2006.  In just 10 years time the payout ratio, both off earnings and free cash flow, have tripled from around 20% in 2006 up to around 60% for 2015.

YUM is in the process of spinning off the volatile, but higher growth potential, Chinese operations into YUM China.  YUM is also aiming to reach almost full franchising of the ex-China operations.  By boosting it's franchised store count that will allow YUM to reduce capital expenditures with targets of ~$400 M in annual savings.  YUM China (YUMC) is expected to start trading on November 1.  For more details on the split and YUM's growth and business plans check out this investor presentation.

Wrap Up

My forward dividends increased by $8.42 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.02% this raise is like I invested an extra $280 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash 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!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

For a dividend growth investor there's not much better than hearing news of a dividend increase.  So far this year I've received 41 increases from 33 companies increasing my forward 12-month dividends by $240.87.

My FI Portfolio's forward-12 month dividends increased to $5,418.99 and including my Loyal3 portfolio's forward dividends of $65.50 brings my total taxable account forward dividends to $5,484.49.  My Roth IRA's forward 12-month dividends are at $240.84.

Previous increases announced this month:

Verizon Communications (VZ)
Realty Income (O)
Phillip Morris (PM)
Microsoft Corporation (MSFT)
McDonald's Corporation (MCD)

Expected Raises in October:

Aflac (AFL)
Visa (V)

Starbucks (SBUX)
Omega Healthcare Investors (OHI)

Do you own shares of YUM?  What do you think of the split off of the China business?  Was the 10% raise just right?

Please share your thoughts below.

Image courtesy of digitalart on


  1. Congrats on the increase. I don't own Yum stock, but I'm a customer :-)

    1. OH,

      The raise was solid and I'm looking forward to seeing how the companies do with China split out. Also thanks for being a customer!