It's a celebration, Fools! For lovers of dividend growth, the past two weeks have been like an extended Dividend Christmas. From the maker of Band-Aids to the exchange that trades frozen concentrated orange juice futures, companies have been tripping all over themselves to reward shareholders with dividend hikes.

Where to start? Below are what I consider to be the most notable corporate gifts in the form of dividend increases from the past week:


Dividend Increase

New Yield

Motley Fool CAPS Rating

PepsiCo (NYSE:PEP)




Arch Coal (NYSE:ACI)




Dow Chemical (NYSE:DOW)




Chevron (NYSE:CVX)




Johnson & Johnson (NYSE:JNJ)








What a crew. On the one hand, you've got NYMEX Holdings declaring its first quarterly dividend as a public company. On the other, you've got double-digit hikes from the likes of Big Oil stalwart Chevron and Motley Fool Income Investor selections Johnson & Johnson and Dow Chemical.

Johnson's big dividend
Let's kick off a look at Johnson & Johnson by focusing on my gateway question, otherwise known as the Grandma Rule: Could I quickly and easily explain what this business does to my grandma? Trust me, buddy -- your grandma knows way more about J&J's products than you do. You don't even want to know.

With that out of the way, let me say that I generally steer clear of companies that rely on innovation to grow sales -- even wildly profitable ones like J&J. As such, I have mixed feelings about this sucker. On the one hand, you have the company's impressive consumer products portfolio, which contributed 23.3% of revenues in the first quarter. That portfolio includes just about every name-brand over-the-counter product in your medicine cabinet: Tylenol, Band-Aids, Benadryl, Rogaine (admit it), Listerine ... the list goes on and on.

The company's shares have been under pressure because of concerns over its pharmaceutical pipeline and the falling sales of drug-eluting stents, which were down 27% to $530 million in the latest quarter. One of the company's best-selling drugs, Procrit, has also come under fire because of increased competition and a series of recent studies showing that the anemia drug erythropoietin, typically used to help boost red blood cell counts in chemotherapy patients, carries greater risks than previously recognized. Procrit falls into this class of drugs. Investors should keep a sharp eye on an FDA meeting next week on the subject, as well as on the sliding stent sales.

Still, the company's latest double-digit dividend hike is a signal that management has faith in its ability to grow earnings at a healthy clip. With that growth in mind, the highest of credit ratings, and a 2.6% yield, J&J could serve as a Band-Aid for the portfolios of those of you who are interested in enjoying some of the upside potential (and risk) of the pharmaceutical and medical device fields while also getting a fat, sustainable yield.

The sweet and the salty
You'll never catch this Atlanta native ordering a Pepsi product, but even this Pepsi-hating ATLien has to give the company at least a golf clap for its latest dividend declaration. In addition to its huge 25% payout hike this week, the company also announced it has increased its share repurchase program by an additional $8 billion. Should Pepsi spend the full remaining amount allocated to the buybacks, it will probably take nearly 10% of its outstanding shares off the table over the next three years.

The following table about sums up why I love Pepsi (the company, not its cursed beverages):





Net Profit Margin





Return on Assets





Return on Equity





Data provided by Capital IQ, a division of Standard & Poor's.

The company's shares have seen a steady upward march since 2002, but at a P/E of 19.6, which is only a shade less than its average multiple over the past few years, investors might still find Pepsi's shares a bit salty. Call me a homer, but I'd be more inclined to push my dollars toward Pepsi's beverage nemesis, Coca-Cola (NYSE:KO), which has gained traction as of late and sports a nifty 2.6% yield. But hey, at these prices, long-run dividend reinvestors will probably beat the market with either of these choices.

Dividend school
In the spirit of all the dividend increases we've seen over the past week, I thought it would be a good idea to define and discuss a term you often see bandied about: effective yield. Effective yield measures the value of the current dividend payout on a stock against what you originally paid out for your shares. For example, if you bought shares of Johnson & Johnson on the last day of 1999 at its then-price of $46.63, your effective yield would equal 3.6% [($0.415 * 4) / $46.63], versus a current yield of 2.6% and a then-current yield of 1.2%.

What is effective yield useful for? It is primarily used by dividend-loving folks as a way to demonstrate or gauge how a payout has grown over time in relation to their initial investment. Don't get too swept up in this fun little equation, though, as it completely ignores how long you've been invested in a stock. Over a long enough time horizon, almost any dividend payer has an impressive-sounding effective yield. The measure also tends to draw your focus away from the present investment opportunity toward the past.

I'm not saying calculating your effective yield is a worthless exercise. Just keep your eye focused on the present.

Further reading
For more Foolish dividend goodness, check out last week's version of "The Weekly Dividend," as well as a few Foolish dividend-focused articles from the past week:

Johnson & Johnson and Dow Chemical are both selections in James Early's Motley Fool Income Investor newsletter. To find out the rationale for those picks and more, check out a 30-day free trial.

Foolish editor Joe Magyer went drinking with The Motley Fool's disclosure policy this past weekend. The disclosure policy drank Joe under the table and then threw some crumpled bills on his quivering body for the cab ride home. Joe owns no stocks mentioned in this article. His holdings and CAPS profile are always available for your viewing pleasure. Coca-Cola is an Inside Value selection.