Wednesday, October 7, 2015

Dividend Growth Investing at Work - More YUMmy Dividends


Something I love about dividend growth investing is that each month I get to hear about companies I own deciding to pay me more money in dividends.  Just for owning a small portion of said companies.  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.  That's dividend growth investing at work!  I mean who doesn't like getting a raise for doing nothing?

Yesterday YUM Brands (YUM) announced Q3 earnings that were disappointing coming in at $1.00 which was $0.07 below consensus estimates of $1.07 for earnings per share excluding special items.  However, this still represents a 14% increase compared to Q3 2014.  YUM Brands' total sales increased 6% year over year while also increasing operating profit.  Management did lower their full year guidance for low single digit earnings growth compared to the previous "at least 10%" forecast.

Of course, Mr. Market didn't like the results due to lower growth in the two main emerging markets of China and India and promptly sold shares off from the close of $83.42 to about $69 in the after market which is a 17% decline.

What I was most interested in though was a dividend increase announcement.  The previous quarterly dividend was $0.41 and the new rate is now $0.46.  That's a 12.2% increase and also marks 11 consecutive years of growing the dividend at a double digit rate.  Since I own 42.099 shares of YUM Brands, this raise will increase my forward 12-month dividends by $8.42.

Thanks to the dividend increase of 12.2% and a 17% decrease in the share price, the current yield increased to 2.67%.  That's a 70 basis point increase in one day thanks to the combination of the dividend increase and large price drop.  If I had available capital and shares open today near the after hours prices I'd be very tempted to add shares of this company that still has plenty of room to run.  Speculators might be worried about the slow sales recovery in China and the lowered full year guidance but investors should relish this opportunity because the long term plan is still in tact.  The announcement today was still relatively good news for the long term investor, the price action just brought the valuation down a reasonable level.  Prior to the price decline YUM was trading for a 40 P/E ratio, now it's down to a ~21 P/E ratio based off full year 2015 estimates.

My forward dividends increased by $8.42 with me doing nothing.  That's right, absolutely nothing to contribute to YUM Brands (except for probably eating a bit too much Taco Bell).  Based on my portfolio's current yield of 3.31% this raise is like I invested an extra $254 in capital.  Except that I didn't!  Several of the companies I own just decided to send more of the profits 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!  That's the beauty of the dividend growth investing strategy because you build up your dividends by fresh capital investment as well dividend increases from the companies you own.

Even better is that the dividend increase party of October is just beginning.  Based on increase announcements from last year Aflac (AFL), Visa (V), and Starbucks (SBUX) should all be joining in on the fun.

My FI Portfolio's forward-12 month dividends are up to $5,989.88 and including my Loyal3 portfolio's forward dividends of $58.72 brings my total taxable account forward dividends to $6,048.59.

Contemplating adding YUM Brands to your portfolio after the solid increase and share price decline?

Image courtesy of digitalart on FreeDigitalPhotos.net.

14 comments:

  1. Sometimes I don't understand how a stock gets punished because the annalists get it wrong. As you said they still had solid growth. Looks like a good buying opportunity. as it hasn't been this cheap since mid 2014 or so. Thanks for the update.

    ReplyDelete
    Replies
    1. Captain,

      It wasn't a great quarter but considering the big problem of dealing with a slowing China it was an okay quarter. I think it sold off due to that and that management was still reaffirming "at least 10% growth" in EPS as of 2Q and now the forecast was lowered to low single digit. Management clearly got it wrong and didn't expect China sales to recover as slowly as they did. But the valuation is now reasonable for a company that could still get back to 10%+ growth per year for several more years. And the dividend increase sure was nice!

      Thanks for stopping by!

      Delete
  2. Congrats on the dividend increase, JC. Gotta love those pay raises that keep coming regularly.

    Best
    R2R

    ReplyDelete
    Replies
    1. R2R,

      A 14% increase is definitely solid. And doing nothing but own a part of the business to earn that increase is even better.

      Thanks for stopping by!

      Delete
  3. I love posts like this to remind me there is a long road ahead, but it's achievable. Thank you for sharing.

    I read an article this morning on how the author is defending his large cash position of >$100K, and the rest are in "defensive" metal position. He likes to buy stocks that noone love and buy the stock that "hit the bottom". hiihih... you know what, if we know what is the bottom of a stock or a sector, we're all sitting pretty right now instead of cranking out dividend and waiting for the dividend increase. We might as well trading options heheh.

    ReplyDelete
    Replies
    1. vivianne,

      DGI definitely isn't a get rich quick strategy but I'd say it's probably one of the safest strategies to get rich with for the average Joe investor.

      I read that same article and it kind of caught me by surprise since I've been following his blog since it started. There's money to be made by purchasing the most unloved assets and then selling when they're wanted by everyone but to me it increases the difficulty. I like simple so DGI works well for me. His strategy requires him to be right two times and get the timing right as well.

      Thanks for stopping by!

      Delete
  4. Congrats on the raise buddy. I saw that move and immediately wished I was up to speed on YUM. Usually, I'll aggressively buy a move like that.....if I understand and am up to date on the underlying company. I don't make a lot of swing trades, but what happened today is usually how they start. Take care JC!
    -Bryan

    ReplyDelete
    Replies
    1. Bryan,

      To me that decline was not warranted based on the quarterly results, but the valuation was out of whack so that's probably why we saw such a big move. I wouldn't be surprised to see the share price stay around these levels for a bit until they start getting some good news to come out so there's still time to get up to speed and add shares if you think it looks good.

      Thanks for stopping by!

      Delete
  5. JC,

    The raise is fantastic. No day job will award that except once in a blue moon. And even then...

    YUM has been on my watch list for over a year and today's action jumped out at me as a good entry opportunity. My ammo is cleaned out at the moment, but I'd like to think these levels will be looked back at as a great opportunity as was Target's dive 18 months ago.

    Best,

    Dan (DWC)

    ReplyDelete
    Replies
    1. DWC,

      Yeah I've never received a 12% increase from my employer. And it's definitely not regular either.

      I expect that the price should remain under pressure for a bit so you should be able to add some to your portfolio. Still a great opportunity and now the valuation makes sense.

      Thanks for stopping by!

      Delete
  6. I managed to add some Yummy shares yesterday. ;-)

    ReplyDelete
    Replies
    1. DGI,

      Wish I'd had some capital because I'd like to add to my position in YUM especially after a solid dividend increase and that huge drop in share price. It's finally back down to reasonable valuation.

      Thanks for stopping by!

      Delete
  7. Love the dividends! I already hold MCD for about 7% of my portfolio, or I would be all over YUM brands too.

    I really enjoy your website and think it has a lot of useful stuff. Thanks for your hard work.

    http://freedomthroughpassiveincome.com/

    ReplyDelete
    Replies
    1. Jackie,

      I own a bit too much MCD for my liking but the value was there. I'll still hedge my bets by owning YUM as well. I think there's room in a portfolio for both.

      Glad you enjoy the site and thanks for stopping by!

      Delete