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Dividend Growth Investing At Work - A Hidden Increase

|Includes: PepsiCo Inc. (PEP)

On Wednesday, Pepsico, Inc. (NYSE:PEP) reported 4Q and full year 2016 results. The earnings report looked pretty solid, but what really got me excited was the dividend increase. Pepsico is a bit of an odd fellow when it comes to their dividend raises where they've announced the raise in February to start with the June payment.

You can check out my recent analysis on Pepsico over at Seeking Alpha.

However, if you looked closely through the earnings release you'd have seen that the annual dividend was being increased from $3.01 to $3.22. On a quarterly basis the new dividend will be $0.805 compared to the $0.7525 or a 7.0% increase. The current year will mark 45 consecutive years of dividend increases giving them the title of Dividend Champion. Shares currently yield 3.02% based on the new dividend rate.

Since I own 61.554 shares of Pepsico in my FI Portfolio this raise increased my forward 12-month dividends by $12.93. This is the 4th dividend increase that I've received from Pepsico since initiating a position in late 2013. Cumulatively my Pepsico dividends have risen by 41.9% from dividend growth alone! According to USInflationCalculator the total rate of inflation over the same period is just 4.2%.


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

Pepsico's 45 year dividend growth streak dates back to 1972 which is impressive in its own right. However, what investors really want to see is dividend growth that exceeds the rate of inflation over time. That's why I like to look at the rolling dividend growth rates for the 1-year, 3-year, 5-year and 10-year periods.

PepsiCo, Inc. Annual Dividend and Rolling Dividend Growth Rates

*2017's annual dividend assumes 1 $0.7525 payout and 3 $0.805 payouts.

An interactive graphical version of the previous chart can be found here.

Dividend growth from one year to the next might fluctuate, but things even out when you look at slightly longer time periods. The "worst" growth rate for each time period was this:

  • 1-year: 2.53%
  • 3-year: 3.56%
  • 5-year: 3.96%
  • 10-year: 7.52%

Wrap Up

My forward dividends increased by $12.93 with me doing nothing. That's right, absolutely nothing to contribute to their operations. Based on my portfolio's current yield of 2.87% this raise is like I invested an extra $450 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.

Thus far in 2017 I've received 5 dividend raises from the companies that I own increasing my forward dividends by $36.17.

Previous raises announced this month:
3M Company (NYSE:MMM) (Stock Analysis)

My FI Portfolio's forward-12 month dividends increased to $5,576.71. Including my Loyal3 portfolio's forward dividends of $68.37 brings my total taxable accounts dividends to $5,645.09. My Roth IRA's forward 12-month dividends are at $245.70.

Do you own shares of Pepsico? Were you happy with a 7% raise?

Please share your thoughts below.

Disclosure: I am/we are long PEP.

Additional disclosure: I am not a financial professional. Please consult an investment advisor and do your own due diligence prior to investing. Investing involves risks. All thoughts/ideas presented in this article are the opinions of the author and should not be taken as investment advice. Information from this article was sourced from PepsiCo Inc.'s Investor Relations. All chart/images presented in this article were created by the author unless otherwise noted. In addition to my PEP position I am currently short a $104 put option expiring 2/24.