Dividend Increase | Chevron Corporation (CVX)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Chevron 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 January 29th the Board of Directors at Chevron Corporation (CVX) approved an increase to the quarterly dividend payment.  The dividend was increased from $1.19 up to $1.29.  That's an excellent 8.4% increase.  Shares currently yield 4.63% based on the new annualized payout.  Chevron is a Dividend Champion with 33 consecutive years of dividend increases.

The newly increased dividend will be payable on March 10th to shareholders of record as of February 18th.

Since I own 66.115 shares of Chevron in my FI Portfolio, this raise increased my forward 12-month dividends by $26.45.  This is the 5th dividend increase I've received from Chevron since initiating a position in May 2013.  The total organic dividend growth since my purchase is 29%.

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

During Chevron's dividend growth streak, the 1-year growth rate has ranged from 0.2% to 14.9% with an average of 6.8% and a median of 6.7%.

For a commodity based company such as Chevron I would expect much larger fluctuations in dividend growth from year to year.  That's why I like to look at longer periods of dividend growth that should cover the full boom/bust cycle of their products.

Expanding out to the 29 rolling 5-year periods annualized dividend growth has ranged from 2.5% to 12.1% with an average of 6.8% and a median of 6.5%.

Looking at the 24 rolling 10-year periods annualized dividend growth has come in between 5.0% to 10.7% with an average of 7.1% and a median of 6.7%.

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.

Chevron's 5-year average forward dividend yield is 4.08% which corresponds to a share price of $126.47 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 $115 - $140.  At a current price of $111.40 shares are trading below the lower end of the fair value range.

Chevron is trading at 17.8x FY 2019's estimates of $6.27 and 16.4x FY 2020's estimates of $6.81.   

Currently, Chevron is valued at a 7.6x EV/EBITDA multiple which suggests that shares are inexpensive.

Analysts currently forecast Chevron to have annual earnings growth of 9.6% over the next 5 years.  Adding the current yield of 4.6% gives an estimate for annual returns of 14.2% before accounting for valuation changes.


Wrap Up

This raise increased my forward dividends by $26.45 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.87% this raise is like I invested an extra $922 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.

I've now received 3 raises from 3 of the 54 companies in my FI Portfolio increasing my forward-12 month dividends by $45.92.

My FI Portfolio's forward-12 month dividends are $7,956.49.  Including my FolioFirst portfolio's forward dividends of $101.12 brings my total taxable accounts dividends to $8,057.61.  My Roth IRA's forward 12-month dividends are $650.79.  My Rollover IRA's forward dividends are $2,377.33.  Across all accounts I can expect to receive $11,085.73 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.  Chevron'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 Chevron?  Were you surprised that the increase was this strong?

Please share your thoughts below.