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📈 BONUS: The 15% raise with a half-percent yield. 💵McKesson posted the week's largest dividend increase. The filings explain why almost no income investor should care. McKesson raised its dividend 15% on Wednesday, to 94 cents a quarter. It was the biggest percentage increase on the week's board, bigger than any of the banks. If you were scanning dividend headlines for an income idea this week, McKesson is the one that would have stopped your eye. Let me walk you through why it probably shouldn't have. The press release reads clean. Fifteen percent, the tenth straight year of increases, a healthcare distributor with real cash flow behind it. On its own, that looks like exactly the kind of dividend-growth story a long-term holder wants to own. The headline isn't wrong. It's just incomplete. The number the headline leaves out is the yield. McKesson trades up near $700 a share. A 94-cent quarterly dividend works out to $3.76 a year, and against a $700 stock, that is a yield of roughly half of one percent. You could hold McKesson through a full decade of 15% raises and still collect less annual income than a savings account pays you today. Whatever the reason to own this company, the dividend is not it.
A 15% raise on a half-percent yield is a rounding error dressed up as a milestone. The filing tells you where the cash really goes.
The filings show why the yield stays so low. McKesson pays out under 8% of its earnings as dividends. Payout ratio is just the share of a company's profit it hands back to shareholders as dividends, and under 8% is close to nothing. The other 92-plus percent goes mostly to buying back its own stock. This is a company that returns cash to owners by shrinking the share count, not by mailing them a check. The dividend is almost an afterthought on the capital plan. None of this makes McKesson a bad business or the raise fake. Just the opposite. The raise is real, and with a payout ratio that low, the coverage behind it is about as safe as coverage gets. For a total-return investor who wants buybacks and a token dividend on the side, the stock does its job. The mismatch only bites if you saw the number 15% and heard the word income. The broader lesson is the one worth carrying past this single stock. A percentage raise and a paycheck are two different things. A 15% raise on a tiny base is still tiny. A 4% raise on a name yielding 4% puts real money in your pocket every quarter. Read the raise, the yield, and the payout ratio together, and the big headline number quietly stops fooling you.
The fine print: McKesson's raise was the largest and the least relevant on the week's board, because 15% of almost nothing is still almost nothing. The headline said dividend. The filing said buybacks. Does the payout ratio change how you'd read a big raise like this one? I'd like to hear it, just reply. P.S. If you'd like the week's income notes as they land, the Money Memo text list sends two to three a week, before Monday's open. Opt out anytime. Join the list. — Randy Cole, Editor
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