Friday, February 19, 2016

Dividend Growth Investing at Work - 30 Years of Dividend Growth


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?

Let's dig into the numbers.  On Wednesday the Board of Directors at T. Rowe Price Group (TROW) approved an increase to their quarterly dividend.  The previous payment was $0.52 and the new payment is $0.54.  That's a disappointing, but still an inflation beating 3.85% increase.  The increase marks the 30th consecutive year of increases putting them well onto the Dividend Champions list.  The current yield on T. Rowe Price shares stands at 3.07%.

Since I own 20.143 shares of T. Rowe Price in my FI Portfolio this dividend increase grew my forward 12-month dividends by $1.61.  This is the first dividend increase I've received from T. Rowe Price since initiating a position in 2015 so the cumulative increase to my income is 3.85%.

The average analyst estimate for earnings for T. Rowe Price for fiscal year 2016 stands at $4.45 so the new dividend rate represents a forward payout ratio of 48.5%.  Based on the TTM free cash flow and the current diluted weighted shares outstanding the new dividend represents a 41.6% free cash flow payout ratio.

My forward dividends increased by $1.61 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.23% this raise is like I invested an extra $50 in capital.  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 through fresh capital investment as well dividend increases from the companies you own.

I've now received 6 dividend increases so far this year adding $34.42 to my forward 12-month dividends.

February looks to be a solid month for dividend increases with 4 more of my holdings expected to announce raises.

My FI Portfolio's forward-12 month dividends are up to $5,530.10 and including my Loyal3 portfolio's forward dividends of $62.06 brings my total taxable account forward dividends to $5,592.17.

Do you own shares of T. Rowe Price?  Should management have given shareholders a bit more of a raise or hold onto cash in case things get worse?

Image courtesy of digitalart on FreeDigitalPhotos.net.

6 comments:

  1. Congrats on the raise, JC. TROW is something that has always slipped thru my investment dollars...looks like a great company and the dividend growth keeps on coming.

    Best wishes
    R2R

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    1. R2R,

      TROW is solid and I love the asset manager business model. Although I do want to look more into BlackRock due to their large ETF offerings to see what they can offer as a DG investment.

      Thanks for stopping by!

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  2. I also bought a little TROW, back in August. Of course, I was attracted to the dividend growth rate. The dividend growth in our portfolio has been on the low side, so I wanted to spice it up a little with a stock like TROW. Sigh... that didn't work out too well, did it? :-) Ah well, I'll keep the stock. The payout ratio is still quite reasonable. Perhaps next year will be better and I suppose a very slight chance exists that another special dividend will be announced.

    Steve

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    1. Dividend Gravy,

      If you look at their annual growth rates you'll see that overall it's really solid but from time to time they do have some lackluster DG. I'm curious if they might be expecting poor market returns that would lead to lower revenues for them for 2016. Over the long run though the asset manager business model is solid and one of my favorites.

      Thanks for stopping by!

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  3. That is so cool! I just bought my first stock. I'm starting slow :) You are always so inspiring :)
    xo K

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    1. Kate,

      Congratulations on making your first individual stock investment. Taking it slow is probably the right idea when it comes to stock investing. Do as much reading as you can and the biggest recommendation that I have is to write down your investment thesis when you invest your money. That way you can revisit it to see if your thesis is still in tact or improve your due diligence process in the future.

      Thanks for stopping by!

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