Dividend Increase | EOG Resources (EOG)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks EOG 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 25th the Board of Directors at EOG Resources (EOG) approved an increase in the quarterly dividend payment from $0.375 up to $0.4125.  That's an excellent 10.0% raise.  EOG's dividend growth streak is just 4 years; however, they had previously reached a 16 year streak which ended in 2016.  Shares currently yield 2.54% based on the new annualized payout.

The new dividend will be payable April 30th to shareholders of record as of April 16th.

Since I own 8.098 shares of EOG in my FI Portfolio, this raise increased my forward 12-month dividends by $1.21.  This is the 9th dividend increase I've received from EOG after initiating a position in 2011.  Total organic dividend growth over that time is an excellent 416%.

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

While EOG hasn't consistently given dividend raises every single year like clockwork, that's been more than made up for with the pace of dividend growth in the good times.  Much of that is due to the nature of their business where they don't get to control the price of their end products except whatever pricing they hedge away.

Dating back to 1993 there's been 24 rolling 5-year periods with EOG's annualized dividend growth ranging from 1.7% to 59.5% with an average of 21.6% and a median of 15.4%.

Over that same time there's been 19 rolling 10-year periods with annualized dividend growth ranging from 11.6% to 34.2% with an average of 23.3% and a median of 22.1%.

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.

EOG's 5-year average forward dividend yield is 1.37% which corresponds to a share price of $120 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 $109 - $134 and suggests that EOG is trading well below the fair value range.

Wrap Up

This raise increased my forward dividends by $1.21 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 $50 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 15 raises from the companies in my FI Portfolio increasing my forward-12 month dividends by $132.22.

My FI Portfolio's forward-12 month dividends are $7,874.98  Including my FolioFirst portfolio's forward dividends of $109.72 brings my total taxable accounts dividends to $7,984.70.  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 $12,137.16 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.  EOG Resources' 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 EOG Resources?  What about other commodity based businesses?

Please share your thoughts below.