Dividend Increase | Coca-Cola (KO)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Coca-Cola 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 February 20th the Board of Directors at Coca-Cola approved an increase in the quarterly dividend payment.  The dividend was increased from $0.40 to $0.41.  That's a pretty meager 2.5% increase although it's in line with the previous two increases.  Coca-Cola is a Dividend Champion with 58 consecutive years of increases. Shares currently yield 2.85% based on the new annualized payout.

The new dividend will be payable April 1st to shareholders of record as of March 16th.  

Since I own 163.541 shares of Coca-Cola in my FI Portfolio, this raise increased my forward 12-month dividends by $6.54.  This is the 9th dividend increase I've received from Coca-Cola since initiating a position in September 2011.  The total organic dividend growth over that time comes to 74.5%.

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

Coca-Cola is one of the quintessential dividend growth stocks.  However, more recently the business has struggled to grow much which has led to a decline in dividend growth and an increase in their payout ratio.

Of the 50 1-year periods dating back to 1970, Coca-Cola's year over year raises have ranged from 2.5% to 61.6% with an average of 11.8% and a median of 9.7%.

Of the 46 rolling 5-year periods, annualized dividend growth has ranged from 4.4% to 30.3% with an average of 11.5% and a median of 9.7%.

Of the 41 rolling 10-year periods, annualized dividend growth has ranged from 6.4% to 19.7% with an average of 11.0% and a median of 9.9%.

The 1-, 3-,5- and 10-year rolling dividend growth rates since 1970 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.

Coca-Cola's 5-year average forward dividend yield is 3.25% which corresponds to a share price of $50.50 based on the new annualized payout.  

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 $46 - $56 and suggests that shares of Coca-Cola are trading above the upper end of fair value at the moment.

Using a multiple analysis, shares of Coca-Cola appear to be quite expensive.  On a TTM basis shares are trading at 28.9x EPS and on a forward basis it's at 26.1x.  Coca-Cola is also valued at a 21.9x EV/EBITDA multiple which is quite rich.


Wrap Up

This raise increased my forward dividends by $6.54 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 3.04% this raise is like I invested an extra $215 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 12 raises from 12 of the 54 companies in my FI Portfolio increasing my forward-12 month dividends by $96.59.

My FI Portfolio's forward-12 month dividends are $8,025.85.  Including my FolioFirst portfolio's forward dividends of $101.75 brings my total taxable accounts dividends to $8,127.60.  My Roth IRA's forward 12-month dividends are $658.43.  My Rollover IRA's forward dividends are $2,395.36.  Across all accounts I can expect to receive $11,181.39 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.  Pepsi'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 Coca-Cola?  Do you think they can return to mid-single digit raises?

Please share your thoughts below.