Dividend Increase | United Parcel Service (UPS)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks UPS 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 February 1st the Board of Directors at United Parcel Service (UPS) approved an increase in the quarterly dividend payment.  The dividend was increased from $1.02 to $1.52 which is an incredible 49.0% increase.  United Parcel Service is a Dividend Challenger with 13 consecutive years of dividend growth.  Shares currently yield 2.62% based on the new annualized payout.

The new dividend will be payable March 10th to shareholders of record as of February 22nd.

Since I own 30.955 shares of UPS in my Rollover IRA, this raise increased my forward 12-month dividends by $61.91.  This is the 4th raise that I've received from UPS since initiating a position in 2019.  Total organic dividend growth over that time is an excellent 67.0%.

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

UPS needed a few years to get their dividend growth ways lined out with the dividend initiated in 1999, frozen in 2002, grew through 2008, then frozen again in 2009.  Since then dividend growth has come every year.

Dating back to 1999 year over year dividend growth has ranged from 0.0% to 126.7% with an average of 15.9% and a median of 9.0%.

There's been 19 rolling 5-year periods during that time with annualized dividend growth ranging from 5.5% to 30.1% with an average of 10.6% and a median of 8.3%.

There's also been 14 rolling 10-year periods with UPS' annualized dividend growth ranging from 7.0% to 19.6% with an average of 9.7% and a median of 8.7%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates for United Parcel Service since 1999 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 3 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.

United Parcel Service's 3-year average forward dividend yield is 2.92% which corresponds to a share price of $208 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 3-year moving average yield +/- 10%.  That gives a fair value range of $189 - $231 and suggests that shares are trading on the upper end of 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 UPS can maintain 7% annual dividend growth shares are worth around $216 per share.

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

Reducing the estimated growth rate to 6%, but maintaining the 10% discount rate lowers the fair value to $161.  Maintaining the 7% dividend growth rate, but reducing the discount rate to 9% increases the fair value to $325.

Wrap Up

This raise increased my forward dividends by $61.91 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my Rollover IRA's current yield of 1.98% this raise is like I invested an extra $3,132 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 increase I've received from the companies in my Rollover IRA in 2022 raising my forward 12-month dividends by  a combined $77.07.  

My FI Portfolio's forward-12 month dividends are $9,768.22  Including my FolioFirst portfolio's forward dividends of $178.71 brings my total taxable accounts dividends to $9,946.93.  My Roth IRA's forward 12-month dividends are $923.99.  My Rollover IRA's forward dividends are $4,169.56.  Across all accounts I can expect to receive $15,040.48 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.  United Parcel Service'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.

Were you surprised by United Parcel Services' monster dividend increase?

Please share your thoughts below.


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