Dividend Increase | McCormick & Company (MKC) Roth IRA

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks McCormick for the 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 November 26th the Board of Directors at McCormick & Company (MKC) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.57 up to $0.62 per share.  That's another solid 8.8% raise!  McCormick is a Dividend Contender with 34 consecutive years of dividend increases.  Shares currently yield 1.44% based on the new annualized payout.

The newly increased dividend will be payable on January 2nd to shareholders of record as of December 2nd.

Since I own 14.906 shares of McCormick in my Roth IRA, this raise increased my forward 12-month dividends by $2.98.  This is the 3rd increase I've received from McCormick since initiating a position in February 2017.  The total organic dividend growth rate for McCormick over my holding period is 31.9%. 

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

Of the 34 1-year periods starting in 1987, McCormick's annual dividend growth has ranged from 5.0% to 35.7%.  The average increase has been 12.1% with a median of 9.4%.

There are 30 rolling 3-year periods during McCormick's dividend growth streak and annualized dividend growth has ranged from 7.0% to 27.1% with an average of 11.9% and a median of 9.2%.

Of the 25 rolling 10-year periods, annualized dividend growth has ranged from 7.7% to 17.7% with an average of 11.0% and a median of 10.3%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1985 can be found in the following chart.  

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

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.

McCormick's 5-year average forward dividend yield is 1.82% which corresponds with a share price of $136 based on the newly raised dividend.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $123 - $151 which suggests shares are currently trading well above fair value.

Analysts expect McCormick to have earnings of $5.35 for FY 2019 and $5.62 for FY 2020.  The current price of $171.99 has shares valued at 32.2x and 30.6x estimates, respectively.  Using the EV/EBITDA shares look quite expensive at 24.3x.

The return from an investment is comprised of 3 parts: growth in earnings + dividend yield + changes to valuation.  Before accounting for valuation changes, McCormick could potentially produce 9.9% annualized returns; however, I believe that valuation changes are likely to be a drag on future returns.

Wrap Up

This raise increased my forward dividends by $2.98 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my Roth IRA's current yield of 2.84% this raise is like I invested an extra $150 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.

My FI Portfolio's forward-12 month dividends are $7,771.69.  Including my FolioFirst portfolio's forward dividends of $101.12 brings my total taxable accounts dividends to $7,872.81.  My Roth IRA's forward 12-month dividends increased to $632.91.  My Rollover IRA's forward dividends increased to $2,343.75.  Across all accounts I can expect to receive $10,849.47 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  McCormick'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.

Do you own shares of McCormick & Company?  How has dividend growth for your holdings fared in 2019?  Better or worse than 2018?

Please share your thoughts below.