Dividend Increase | Pepsico (PEP)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Pepsi 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 11th the Board of Directors at Pepsico (PEP) approved an increase in the quarterly dividend payment from $1.0225 up to $1.075.  That's a solid 5.1% raise.  Pepsico is a Dividend Champion with 49 consecutive years of dividend growth.  Shares currently yield 3.12% based on the new annualized payout.

Pepsi treats their dividend raises a bit different than most companies. On February 11th they reported Q4 FY 2020 earnings and in that report they announced they will raise the dividend, but technically the dividend hasn't been declared yet.  The higher dividend should commence with their June payment.

Since I own 73.472 shares of Pepsi in my FI Portfolio, this raise increased my forward 12-month dividends by $15.43.  This is the 8th dividend increase I've received from Pepsi after initiating a position in 2013 with total organic dividend growth over that time coming to 89.4%.

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

Pepsi's 49 year dividend growth streaks is truly impressive.  That's every year since 1972 that this snack and drink leader has been there paying out more cash to shareholders.

There's been 49 year over year periods during Pepsico's dividend growth streak with annual raises ranging from 2.5% to 52.1% with an average of 12.7% and a median of 11.3%.

Over that same period there's been 45 rolling 5-year periods with Pepsico's annualized dividend growth rate ranging from 4.0% to 27.0% with an average of 12.1% and a median of 11.1%.

There's also been 40 rolling 10-year periods with annualized dividend growth ranging from 7.5% to 20.3% with an average of 11.75 and a median of 11.3%.

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.

Pepsi's 5-year average forward dividend yield is 2.96% which corresponds to a share price of $145 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 $132 - $161 and suggests that Pepsi's shares are trading around fair value.

Wrap Up

This raise increased my forward dividends by $15.43 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.41% this raise is like I invested an extra $640 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 11 raises from the companies in my FI Portfolio increasing my forward-12 month dividends by $88.19.

My FI Portfolio's forward-12 month dividends are $7,819.24  Including my FolioFirst portfolio's forward dividends of $109.59 brings my total taxable accounts dividends to $7,928.83.  My Roth IRA's forward 12-month dividends are $693.73.  My Rollover IRA's forward dividends are $3,430.48.  Across all accounts I can expect to receive $12,053.04 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 Pepsico?  What do you think about their valuation currently?

Please share your thoughts below.