Wednesday, February 3, 2016
Dividend Growth Investing at Work - 58 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?
Who doesn't love a dividend increase? Yesterday the Board of Directors as 3M Company (MMM) approved an increase to their quarterly dividend. The quarterly rate grew from $1.025 to $1.11 per share which is a very solid 8.3% bump. They even tacked on a share buyback authorization up to $10 B to help shareholders out even more. The dividend announcement came a bit later than expected since the last two raises were announced in December, but prior to that the raises had been announced in February so I wasn't concerned that one wouldn't be coming. This increase marks the 58th consecutive year of increases which is truly impressive. The new yield on 3M shares stands at 3.00%.
I own just 18 shares of 3M so the dividend increase grew my forward 12-month dividends by $6.12. This is the second dividend increase I've received from 3M since initiating a position in August 2014 with a cumulative increase of 29.8% to my income.
The average analyst estimate for earnings for 3M for fiscal year 2016 stands at $8.21 so the new dividend rate represents a forward payout ratio of 54.1%. Based on the TTM free cash flow and the current diluted weighted shares outstanding the new dividend represents a 60.1% free cash flow payout ratio.
You can check out my Valuation Analysis on 3M Company from November over at Seeking Alpha.
My forward dividends increased by $6.12 with me doing nothing. That's right, absolutely nothing to contribute to their operations. Based on my portfolio's current yield of 3.24% this raise is like I invested an extra $189 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 4 dividend increases so far this year adding $20.50 to my forward 12-month dividends.
February looks to be a solid month for dividend increases with 6 more of my holdings expected to announce raises.
My FI Portfolio's forward-12 month dividends are up to $5,512.84 and including my Loyal3 portfolio's forward dividends of $61.05 brings my total taxable account forward dividends to $5,573.89.
Do you own shares of 3M Company.? What do you think about its current valuation?
Image courtesy of digitalart on FreeDigitalPhotos.net.