Dividend Increase | Procter & Gamble (PG)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Procter & Gamble 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 April 14th the Board of Directors at Procter & Gamble (PG) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.7459 up to $0.7907.  That's a solid 6.0% raise from this Dividend Champion.  This also marks the 64th consecutive year of dividend growth.  Shares currently yield 2.61% based on the new annualized payout.

The new dividend will be payable May 15th to shareholders of record as of April 24th.  

Since I own 68.412 shares of Procter & Gamble in my FI Portfolio, this raise increased my forward 12-month dividends by $12.26.  This is the 9th dividend increase I've received from Procter & Gamble initiating a position in November 2011.  The total organic dividend growth over that time comes to 51%.

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

Procter & Gamble has long been one of the quintessential businesses for the dividend growth investor as can been in the graph above of the steady and consistent dividend growth the business has provided.

Of the 49 1-year periods since 1971, Procter & Gamble's year over year dividend growth has ranged from 1.0% to 20.8% with an average of 9.1% and a median of 9.1%.

Of the 45 rolling 5-year periods since 1971, annualized dividend growth has ranged from 3.1% to 12.9% with an average of 9.3% and a median of 10.1%.

Of the 40 rolling 10-year periods, annualized dividend growth has ranged from 5.2% to 11.9% with an average of 9.5% and a median of 10.5%.

Dividend growth has slowed, as the following chart illustrates; however, I do expect Procter & Gamble to be able to produce annual dividend growth in the 4-7% range over the long term.  

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.

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.

Procter & Gamble's 5-year average forward dividend yield is 3.12% which corresponds to a share price of $101 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 $92 - $113 and suggests that Procter & Gamble shares are currently overvalued.

Wrap Up

This raise increased my forward dividends by $12.26 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 3.54% this raise is like I invested an extra $346 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 20 raises from 19 of the 54 companies in my FI Portfolio increasing my forward-12 month dividends by $173.03.

My FI Portfolio's forward-12 month dividends are $8,199.27.  Including my FolioFirst portfolio's forward dividends of $101.72 brings my total taxable accounts dividends to $8,300.99.  My Roth IRA's forward 12-month dividends are $678.20.  My Rollover IRA's forward dividends are $2,656.94.  Across all accounts I can expect to receive $11,636.13 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.  Procter & Gamble'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 Procter & Gamble?  Were you surprised to see a 6% raise?

Please share your thoughts below.