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.