Dividend Increase | Chevron Corporation (CVX)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Chevron for another 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 January 26th the Board of Directors at Chevron Corporation (CVX) approved an increase in the quarterly dividend payment.  The dividend was increased from $1.34 to $1.42 which is a solid 6.0% increase.  Chevron is a Dividend Champion with 34 consecutive years of dividend growth.  Shares currently yield 4.39% based on the new annualized payout.

The new dividend will be payable March 10th to shareholders of record as of February 16th.

Since I own 66.115 shares of Chevron in my FI Portfolio, this raise increased my forward 12-month dividends by $21.16.  This is the 7th raise that I've received from Chevron since initiating a position in 2013.  Total organic dividend growth over that time is a respectable 42.0%.

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

Chevron's dividend growth has been anything but steady since I purchased shares.  However, they have technically maintained their dividend growth streak with each year having higher total dividend payments than the previous.

Chevron's dividend growth streak began in 1988 and is now up to 35 years.  Year over year dividend growth has ranged from 0.2% to 14.9% with an average and median of 6.7%.

There's been 31 rolling 5-year periods over that time with annualized dividend growth ranging from 2.5% to 12.1% with an average of 6.6% and a median of 6.2%.

There's also been 26 rolling 10-year periods with Chevron's annualized dividend growth ranging from 4.9% to 10.7% with an average of 7.0% and a median of 6.7%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates for Chevron since 1985 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.

Chevron's 5-year average forward dividend yield is 4.52% which corresponds to a share price of $126 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 $114 - $140 and suggests that shares are trading around fair value.

Another quick and dirty valuation method is the Gordon Growth or Dividend Discount model.  This valuation method is based solely off the expected future dividends as well as your required return.  Based on a 10% discount rate and assuming Chevron can maintain 5.0% annual dividend growth shares are worth around $119 per share.

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

Increasing the estimated growth rate to 6.0% increases the fair value to $151.  

Wrap Up

This raise increased my forward dividends by $21.16 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 2.43% this raise is like I invested an extra $872 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.

This is the 3rd dividend increase I've received from the companies in my FI Portfolio increasing by forward 12-month dividends by $37.46 combined.

My FI Portfolio's forward-12 month dividends are $9,909.55  Including my FolioFirst portfolio's forward dividends of $178.60 brings my total taxable accounts dividends to $9,909.55.  My Roth IRA's forward 12-month dividends are $923.04.  My Rollover IRA's forward dividends are $4,102.47.  Across all accounts I can expect to receive $14,935.06 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.  Chevron'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.

Have you received any dividend raises in 2022 so far?  Do you own shares of Chevron or any of the other oil majors?  Do you think they will still be able to maintain mid single digit dividend growth over time?

Please share your thoughts below.