Dividend Increase | The J.M. Smucker Company

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks J.M. Smucker 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 July 23rd the Board of Directors at J.M. Smucker (SJM) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.85 up to $0.88 per share.  That's a modest 3.5% increase, but a raise nonetheless.  J.M. Smucker is a Dividend Contender with 22 consecutive years of dividend increases.  Shares currently yield 3.11% based on the new annualized payout.

Since I own 20.318 shares of Smucker in my FI Portfolio, after recently doubling my position, this raise increased my forward 12-month dividends by $2.44.  This is the 2nd dividend increase I've received from Smucker since initiating a position in June 2018.  Cumulatively, the organic dividend growth has been 12.8% over that time.  According to US Inflation Calculator, the cumulative rate of inflation over that same time is just 2.0% so Smucker has far outpaced inflation with its dividend growth.

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

Smucker's dividend growth has fluctuated more than I would have expected for a consumer staple.  There's been a 9 quarter streak in the early 2000's where the dividend wasn't raise, and year to year growth ranging from 1.6% to 41.0%.  But when we expand the time frames things are much smoother.  The 13 rolling 10-year periods starting in 2007 has seen annualized dividend growth range from 8.6% to 11.7% with an average of 9.9% and a median of 9.7%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1997 can be found in the following chart.  

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

*2019's dividend growth assumes the new quarterly payout of $0.51 per share is maintained for the rest of 2019.

Based on dividend yield theory Smucker appears to be quite undervalued with a current yield of 3.11% compared to a 5 year average yield of 2.53%.  That's potentially 22% of upside from a valuation perspective before accounting for growth of the business.  The current yield is one of the higher ones that shares of Smucker have offered since the dividend was initiated in 1997.  

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

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

Wrap Up

This raise increased my forward dividends by $2.44 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.89% this raise is like I invested an extra $85 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 30 total increases from 27 of the 54 companies in my FI Portfolio.  Combined those increases have raised my forward 12-month dividends by $209.26.

My FI Portfolio's forward-12 month dividends increased to $7,157.51.  Including my FolioFirst portfolio's forward dividends of $99.93 brings my total taxable accounts dividends to $7,257.44.  My Roth IRA's forward 12-month dividends remain at $543.97.

I've also started compiling dividend data on many of the companies that I own or would like to own.  J.M. Smucker's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

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