Dividend Increase | Deere & Company (DE)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Deere 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 24th the Board of Directors at Deere & Company (DE) approved an increase in the quarterly dividend payment from $0.76 up to $0.90.  That's a huge 18.4% raise.  Deere & Company currently has a 1 year streak of dividend growth but haven't cut the dividend since initiating one in 1992.  Shares currently yield 1.00% based on the new annualized payout.

The new dividend will be payable May 10th to shareholders of record as of March 31st.

Since I own 60.257 shares of Deere in my FI Portfolio, this raise increased my forward 12-month dividends by $33.74.  This is just the 3rd dividend increase Deere after initiating a position in 2014.  Total organic dividend growth over that time is still a solid 50.0%.

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

Deere's dividend growth history isn't the cleanest among dividend growth companies with multiple years of pauses in dividend growth.  For some companies I'd be more concerned about that but given that they are a fairly cyclical business and management has typically been pretty candid about it I'm willing to give them more leeway than other businesses.

Dating back to 1992 there's been 25 rolling 5-year periods with Deere's annualized dividend growth ranging from 0.0% to 37.5% with an average of 10.2% and a median of 8.5%.

Over that same time there's been 20 rolling 10-year periods with annualized dividend growth ranging from 2.8% to 18.1% with an average of 10.6% and a median of 9.8%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1993 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.

Deere's 5-year average forward dividend yield is 1.99% which corresponds to a share price of $181 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 $165 - $201 and suggests that Deere is trading well above the fair value range.

Wrap Up

This raise increased my forward dividends by $33.74 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 $1,402 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 14 raises from the companies in my FI Portfolio increasing my forward-12 month dividends by $131.01.

My FI Portfolio's forward-12 month dividends are $7,874.01  Including my FolioFirst portfolio's forward dividends of $109.72 brings my total taxable accounts dividends to $7,983.73.  My Roth IRA's forward 12-month dividends are $704.76.  My Rollover IRA's forward dividends are $3,447.70.  Across all accounts I can expect to receive $12,136.19 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.  Deere & Company'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 Deere & Company?  How do you handle freezes to dividend growth?  Case by case or no raise and it's gone?

Please share your thoughts below.


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