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 November 4th the Board of Directors at EOG Resources (EOG) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.4125 to $0.75.  You know just a run of the mill 82% increase!  EOG's dividend growth has been anything but consistent with multiples pauses; however, they currently have a 4 year streak going and have never decreased their dividend.  Shares currently yield 3.09% based on the new annualized payout.

This new dividend is also an exact 100% increase compared to the January 2021 payout.

The new dividend will be payable January 28th to shareholders of record as of January 14th.

Since I own 8.098 shares of EOG in my FI Portfolio, this raise increased my forward 12-month dividends by $10.93.  This is the 10th raise I've received from EOG since initiating a position in 2011.  Total organic dividend growth over that time is 837%.  Not a typo!

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

To go along with the huge increase in their quarterly dividend, EOG also announced a $2 per share special dividend payable on December 30th.  That's in addition to the $1 per share special dividend that was paid back in July of this year.  All told EOG is on track to pay out $1.613 per share in quarterly dividends as well as $3.00 per share in special dividends.  This switch in their capital allocation strategy is definitely a welcomed sight.

Dating back to 1993 there's been 29 annual periods with year over year dividend growth ranging from 0.0% to 100.0%, go figure, with an average increase of 26.1% and a median increase of 13.1%.

There's been 25 rolling 5-year periods with annualized dividend growth ranging from 1.7% to 59.5% with an average of 2.2% and a median of 15.6%.

Over that same time there's been 20 rolling 10-year periods with annualized dividend growth ranging from 11.6% to 34.2% with an average of 23.4% and a median of 23.3%.

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 1.56% which corresponds to a share price of $192 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 $174 - $214 and suggests that shares are trading well below fair value.  Of course the good times for a commodity based business might not last so that fair value range likely needs to be reduced.


Wrap Up

This raise increased my forward dividends by $10.93 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 2.23% this raise is like I invested an extra $490 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 48 raises from the companies in my FI Portfolio increasing my forward-12 month dividends by $600.15.

My FI Portfolio's forward-12 month dividends are $8,931.84  Including my FolioFirst portfolio's forward dividends of $178.44 brings my total taxable accounts dividends to $9,110.28.  My Roth IRA's forward 12-month dividends are $886.43.  My Rollover IRA's forward dividends are $4,000.02.  Across all accounts I can expect to receive $13,996.73 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 or any other commodity based businesses?  How do you handle the highly variable and sometimes non-existent dividend growth?  Avoid the sector altogether or do you give a bit more leeway given they have little control over their end product pricing?

Please share your thoughts below.