Dividend Increase | PepsiCo (PEP)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Pepsi for another dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  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.  

On February 15th the Board of Directors at PepsiCo (PEP) announced the intention to increase the dividend payment starting with the June payout.  The dividend payout was increased from $0.9275 to $0.955.  That's a 3.0% increase from the prior payout.  PepsiCo is a Dividend Champion with 47 consecutive years of dividend increases.  Shares currently yield 3.39% based on the new annualized payout.  The press release can be found here.

Since I own 64.484 shares of Pepsi in my FI Portfolio this raise increased my forward 12-month dividends by $7.09.  This is the 6th dividend increase I've received from Pepsi since initiating a position in December 2013.  The total organic dividend growth since I initiated a position has been 68%.  According to US Inflation Calculator the cumulative rate of inflation over that same time is 7.8%.  

I won't go into too much detail here about Pepsi the business or the valuation, you can check that out over on Seeking Alpha.  The TL;DR version is that I think Pepsi is on the upper end of fair value given the modest growth expectations.  Also due to the debt levels I expect dividend growth to be more modest going forward barring a big return of growth for the core business.

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

Pepsi's historic dividend growth has been absolutely fantastic.  From year to year it might fluctuate quite a bit; however, looking at rolling 10-year periods it's never been less than 7.52%.  That's amazing considering there's been 47 years of economic booms and busts, inflation, stagflation, wars and any other calamity that's going to end the global economy as we know it.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1972 can be found in the following chart.  

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

*2019's dividend assumes the new March 2019 payment is made at the previous $0.9275 rate with the June with the remaining payments at the new $0.955 rate.

Wrap Up

This raise increased my forward dividends by $7.09 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.01% this raise is like I invested an extra $235 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 2019 I've received 9 total increases from 9 of the 52 companies held in my FI Portfolio.  In total my forward 12-month dividends have increased by $62.54.

My FI Portfolio's forward-12 month dividends increased to $6,780.38.  Including my FolioFirst portfolio's forward dividends of $92.23 brings my total taxable accounts dividends to $6,872.61.  My Roth IRA's forward 12-month dividends increased to $414.23.

Do you own shares of Pepsi?  Did you expect a bigger dividend increase than just 3%?

Please share your thoughts below.