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.