Wednesday, November 4, 2015

Dividend Growth Investing at Work - Disappointing but Expected


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?

On Tuesday Emerson Electric (Full Analysis Here) announced Q4 earnings that were quite disappointing.  A $0.04 miss on EPS, revenue miss, and underwhelming guidance through the first half of 2016.  While that's bad news all around it was expected and something else that I was sure would happen was an increase to their dividend.  The Board of Directors approved an increase in the quarterly dividend from $0.47 to a staggering $0.475.  I know a bit a of a let down since it's just a 1.1% increase but an increase is an increase and in all honesty it's more than I've received from my employer this year.  Since I own 61.804 shares of Emerson Electric, this raise will increase my forward 12-month dividends by $1.23.  Sweet I can go buy a soda or candy bar!

While the raise is a token increase to keep the dividend growth streak alive it shouldn't have surprised anyone.  The slowdown in the industrial sector and specifically Emerson Electric has been brutal over the last couple months and when Emerson Electric hits a rough patch they decelerate on the dividend growth.  


You can see the dividends continue to march higher year after year but the dividend growth is far from consistent.  Cyclical companies tend to have much lumpier dividend growth rather than a consistent march each year but growth is growth and the volatility in their operations allows for better entry points along the way.  In the good times we can expect a return to better increases in the bad times you get opportunities to buy shares at a discount and collect a fat dividend yield which is up to 3.83% after the increase.

Check out my stock analysis on Emerson Electric to see why I think it's still a good value despite the headwinds.

My forward dividends increased by $1.23 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.21% this raise is like I invested an extra $38 in capital.  Nothing to brag about but hey that's $38 dollars that I didn't actually have to invest.  Except that I didn't!  One 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.

Unfortunately with the first increase for the month now come and gone I'm half way towards my expected dividend raises for the month.  November is not shaping up to be a spectacular month for organic dividend growth but October was a boom with 6 different companies giving me raises.  That's why you invest in more than a handful of companies.  Despite Emerson's small raise so far through organic dividend growth my dividends have grown at a weighted average of 9.55% for 2015 compared to 2014, although the 2016 to 2015 comparison is likely to come in a bit lower.

My FI Portfolio's forward-12 month dividends are up to $6,013.09 and including my Loyal3 portfolio's forward dividends of $59.79 brings my total taxable account forward dividends to $6,072.88.

Are you disappointed with the token increase from Emerson Electric?  Are your other holdings picking up the dividend growth slack?

Image courtesy of digitalart on FreeDigitalPhotos.net.

10 comments:

  1. We don't own Emerson Electric but I can see how that's a disappointing dividend increase. Maybe look at the other way around, just be glad that there's an increase. :)

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    1. Tawcan,

      It's disappointing for this year but it's about what I expected. I figured at most they'd bump it to a $0.48 so a 2% increase. When you look at cyclical companies the dividend is likely to be lumpy just like their operations so it was expected. I'm definitely glad they at least bumped it up. That's more than I can say for my day job for this year.

      Thanks for stopping by!

      Delete
  2. Thanks for the update and your SA article which I always find enlightening. I wouldn't mind owning EMR at some point but there's so much competition for the last month of the quarter in terms of dividend payers. As you mention in your article it looks like EMR is facing continued headwinds and earnings could be weak in the coming year or two which could present a temporary buying opportunity. It's already looking pretty tempting with a P/E nearing it's 5yr low here. I'll be keeping my eyes on it. thanks

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    1. Captain,

      EMR is definitely facing headwinds and management doesn't really see them ending for another at least 6 months. It's looking good here but I have a few other names I'm looking at purchasing before adding to my EMR stake.

      Thanks for stopping by!

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  3. EMR is a great company that is just hitting a speedbump. The slowdown is real and EMR/CAT/UTX and other industrials are good indicators I like to use to show what global growth is like. I'm pretty confident all of these names will make it out alive without cutting the dividend but I prefer putting my money towards companies with more consistent earnings even in periods of slowdowns.

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    1. Young Dividend,

      I think every portfolio could use some industrial/cyclical names in it. Mainly because there's some absolutely wonderful companies in that space plus the cyclical nature, which can make for a very wild ride at times, does allow for selective entry points that offer great initial yields. You don't see companies like KO/PEP/JNJ reach the 4% yield level that often but that's companies like EMR/ETN/CAT were all above that no too long ago. I'd still prefer to have the majority of my portfolio in non-cyclical companies but the cyclicals are great for a portion of your portfolio.

      Thanks for stopping by!

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  4. Don't hold any Emerson but wouldn't sweat it much if I did. They are a 'wait 20 years' kind of investment. You have to be able to stomach some soft stretches.

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    1. FV,

      I agree that you have to take a long term view with many of the cyclicals because earnings and dividend growth is going to be far lumpier compared to say the consumer staples. Also it helps to compare the growth across the cycles as well, trough to trough, peak to peak, trough to peak to try and get an idea of how the long term idea plays out.

      Thanks for stopping by!

      Delete
  5. PIP,

    I am disappointed by the sporadic nature of EMR's dividend increases over the past few years. This is why I have not really bought any $EMR in quite a while. I will keep holding it, but would allocate dividends elsewhere.

    DGI

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    1. DGI,

      It's frustrating because it's not a consistent march higher. I'd actually be okay if the DG was a bit more conservative in the good times though to allow them to be a bit more aggressive in the bad times. Just got another idea for an article based on the fluctuating DG year to year. Of course there's only about 20 articles waiting to be written right now.

      Thanks for stopping by!

      Delete