Dividend Increase Roth IRA | McCormick & Company (MKC)

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 20th the Board of Directors at McCormick & Company (MKC) approved an increase in the quarterly dividend payment from $0.62 up to $0.68.  That's an excellent 9.7% increase from McCormick.  McCormick is a Dividend Champion with 33 consecutive years of dividend growth.  Shares currently yield 1.48% based on the new annualized payout.

The new dividend will be payable January 11th to shareholders of record as of December 31st.  

Since I own 17.141 shares of McCormick in my Roth IRA, this raise increased my forward 12-month dividends by $4.11.  This is the 4th dividend increase I've received from McCormick since initiating a position in February 2017.  Total organic dividend growth over that time is an excellent 44.7%.  

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

Dating back to 1986 there's been 35 rolling 1-year periods and McCormick has given year over year dividend growth ranging from 5.0% to 35.7% with an average of 12.0% and a median of 9.5%.

Over that same time there's been 31 rolling 5-year periods and McCormick has given annualized dividend growth across those periods ranging from 7.0% to 27.1% with an average of 11.8% and a median of 9.2%.

There's also been 26 rolling 10-year periods and annualized dividend growth has ranged from 7.7% to 17.7% with an average of 11.0% and a median of 10.3%.

McCormick's dividend growth has been remarkably consistent over the years.  If dividend growth can continue in the 7-10% area, which I expect they will be able to maintain, then I will be a very happy investor years down the line.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1986 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 1.71% which corresponds to a share price of $159 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 $145 - $176 and suggests that McCormick is trading well above the dividend yield theory implied fair value range.

To read my full write-up on McCormick please check out the analysis on Seeking Alpha.

Wrap Up

This raise increased my forward dividends by $4.11 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my Roth IRA's current yield of 2.49% this raise is like I invested an extra $165 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.

This is the 6th dividend increase I've received this year from the companies held in my Roth IRA increasing my forward 12-month dividends by $16.90.

My FI Portfolio's forward-12 month dividends are $7,590.47  Including my FolioFirst portfolio's forward dividends of $104.61 brings my total taxable accounts dividends to $7,695.08.  My Roth IRA's forward 12-month dividends are $676.91.  My Rollover IRA's forward dividends are $3,144.13.  Across all accounts I can expect to receive $11,516.12 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?  How do you think of its current valuation?  Too high or okay enough to buy?

Please share your thoughts below.


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