Sunday, February 19, 2017

Dividend Growth Investing at Work - Another Classic from this Champion

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Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Coca-Cola for the dividend increase!
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.

To no one's surprise the Coca-Cola Company (KO) announced yet another dividend increase to build on their storied history.  The quarterly dividend was increased from $0.35 to $0.37.  That's a solid 5.7% raise.  2017 will mark 55 consecutive years of dividend growth from Coca-Cola giving them the title of Dividend Champion.  Shares currently yield 3.59% based on the new dividend rate.

Since I own 163.541 shares of Coca-Cola in my FI Portfolio this raise increased my forward 12-month dividends by $13.08.  This is the 6th dividend increase that I've received from Coca-Cola since initiating a position in 2011.  Cumulatively my Coca-Cola dividends have risen by 57.5% from dividend growth alone!  According to USInflationCalculator the total rate of inflation over the same period is just 8.0%.  



A full screen version of the chart can be found here.

Coca-Cola's 55 year dividend growth streak is truly impressive.  However, amassing a lengthy streak is easy if you just do token increases.  That's not been the case with Coca-Cola.  
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Coca-Cola (KO) Annual Dividend and Rolling Dividend Growth Rates
*2017's annual dividend assumes 4 dividends at the $0.37 payout.

An interactive graphical version of the previous chart can be found here.

Coca-Cola has been a model of consistency when it comes to dividend raises.  However, one bit of concern is the recent "small" raises that came to just 6.1% and 5.7%.  Much of that has to do with the fact that Coca-Cola is truly a global company so a strengthening US dollar has an out-sized effect on the company's numbers.  Over time this should even out, but with struggling revenue growth even when factoring out foreign exchange dividend is likely to stay kind of muted until the US weakens.

Wrap Up

My forward dividends increased by $13.08 with me doing nothing.  That's right, absolutely nothing to contribute to their operations save for drinking some of their products.  Based on my portfolio's current yield of 2.91% this raise is like I invested an extra $450 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.

Thus far in 2017 I've received 6 dividend raises from the companies that I own increasing my forward dividends by $30.68.

Previous raises announced this month:
3M Company (MMM) (Stock Analysis)
PepsiCo, Inc. (PEP) (Stock Analysis)

My FI Portfolio's forward-12 month dividends increased to $5,589.80.  Including my Loyal3 portfolio's forward dividends of $68.84 brings my total taxable accounts dividends to $5,658.64.  My Roth IRA's forward 12-month dividends are at $283.30.

Do you own shares of Coca-Cola?  Was the nearly 6% raise enough for you?

Please share your thoughts below.

Image source

8 comments:

  1. Hi, JC -- I'm also a happy owner of KO. I prefer seeing dividend increases of 7% or more. But nearly 6% is pretty close, so I'm OK with that. At least the increase is beating inflation by quite a margin!

    Thanks for sharing and reminding us what a great dividend history KO has!

    ReplyDelete
    Replies
    1. Ferdi,

      Considering the headwinds facing the business I'm happy with a 6% raise. Honestly I'd have preferred to see maybe a 4% increase and then have them use that extra capital to try and right the ship. FX headwind will work themselves out over the long run so I'm not as concerned about that, but they need to find a way to actually grow the top line in order to keep their streak going another 50 years. That payout ratio is creeping up there although on a currency neutral basis it looks better. I hope the new CEO can do something with this great company because Kent did nothing but pay himself.

      All the best.

      Delete
  2. Another happy owner of KO here too. I know KO has been getting bashed as of late as growth has stalled and the stock has done nothing in about two years. Still, from an income and dividend perspective, the stock continues to perform well for those who continue to simply hold, reinvest and/or add fresh capital. The recent raise was mroe than enough for me.

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    Replies
    1. Keith,

      From a purely dividend perspective it's performing admirably. The question now is whether the company gets back on track. I'm hoping with Kent leaving we'll get some new ideas and the company can actually start moving forward again. If so then this is a great point to be reinvesting dividends. If not then it's throwing good money after bad. It's been a while since I've taken an in depth look at KO so that's moving up the priority list.

      Thanks for stopping by!

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  3. Dividend growth in this type of share just makes you so excited. Thanks for the write up. I do not own any KO but hopefully one day I will.

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    Replies
    1. BHL,

      KO has been a solid company for a long time but recently they've fallen on hard times. Still a solid company and I don't see them going anywhere anytime soon.

      All the best.

      Delete
  4. i was a Owner of KO some days ago. I sold 90 shares because the stock was trading in EUR, so i could not sell covered calls on it.

    I think the 6% raise is to high, the payout ratio is rising and rising. we are almost at 80%. some years ago the payout ratio was at 50%.

    best regards
    Chri

    ReplyDelete
    Replies
    1. ed,

      I have to agree with you. While I liked seeing a 6% raise I think it's a bit aggressive. I'd have been content with say a 4% raise if management used the rest of that cash to get the company growing again.

      Thanks for stopping by!

      Delete