Dividend Increase Rollover IRA | Mastercard (MA)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Mastercard 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 December 8th the Board of Directors at Mastercard (MA) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.40 up to $0.44.  That's a solid 10.0% increase.  Mastercard is a Dividend Challenger with 9 consecutive years of dividend growth. Shares currently yield 0.52% based on the new annualized payout.

The new dividend will be payable February 9th to shareholders of record as of January 8th.  

Since I own 17.481 shares of Mastercard in my Rollover IRA, this raise increased my forward 12-month dividends by just $2.80.  This is the 1st dividend increase I've received from Mastercard after initiating in February.

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

Mastercard initiated a dividend back in 2006 an increased the payment after just two payouts.  However, they then maintained that same payout for 20 consecutive quarters which ended their streak.  Mastercard resumed increases in 2012 and it's been off to the races since then.

Dating back to the initial payment in 2006 year over year dividend growth has ranged from 0.0% to 109.5% with an average of 33.5% and a median of 18.8%.

Over that same there's been 11 rolling 5-year periods with Mastercard's annualized dividend growth ranging from 10.8% to 66.2% with an average of 34.7% and a median of 28.5%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 2006 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.

Mastercard's 5-year average forward dividend yield is 0.62% which corresponds to a share price of $284 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 $255 to $314 and suggests that shares are trading roughly 19% above the fair value price and 7% above the upper end of the fair value range.

Wrap Up

This raise increased my forward dividends by $2.80 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my Rollover IRA's current yield of 2.08% this raise is like I invested an extra $135 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 the companies in my Rollover IRA this year.

My FI Portfolio's forward-12 month dividends are $7,609.69  Including my FolioFirst portfolio's forward dividends of $104.79 brings my total taxable accounts dividends to $7,714.48.  My Roth IRA's forward 12-month dividends are $676.96.  My Rollover IRA's forward dividends increased to $3,199.24
.  Across all accounts I can expect to receive $11,590.68 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.  Mastercard'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.

How long do you think Mastercard can keep 10%+ dividend growth going?

Please share your thoughts below.