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.

10 comments:

  1. Hey JC,

    Congrats on the dividend increase. Like how you compared it to investing an extra $189.00. Crazy when you think about things like that, really puts this DGI methodology into perspective.

    DB

    ReplyDelete
    Replies
    1. Dividend Beginner,

      I like making the comparison to equivalent capital invested. For me it really shows the power of dividend growth investing.

      Thanks for stopping by!

      Delete
  2. Beginner/JC... even more crazy is to think that JC has roughly 25 companies that should increase their dividend (that's why we buy them after all) throughout each year. Simplifying things here but, if all companies have same amount of capital in them as MMM above and on average raise 8% like MMM... wait for it...

    That's like JC invested an extra $4,725 this year! ... at a 3.24% yield.

    People/friends/family might poke fun at the "$6.00" raise in total, but when you start adding all the raises up and the capital that you no longer have to invest... that's where we get to laugh back!!!

    ADD

    ReplyDelete
    Replies
    1. ADD,

      I need to figure out why my FI Portfolio isn't displaying the full thing when embedded. Something I need to work on for maintenance but I enjoy writing/reading/research so much more. I actually have positions in 47 companies plus my employer in my FI Portfolio. But the premise remains the same. Dividend increases across the board will just continue to churn the equivalent invested capital higher.

      It's definitely a long term strategy that requires above all patience but I think it's one of the best strategies for the average Joe investor.

      Thanks for stopping by!

      Delete
  3. Congrats on the dividend increase, would love to own MMM i the future. The increase adds up over time, you're so right.

    ReplyDelete
    Replies
    1. Tawcan,

      3M is an excellent company and one I plan to own for the next 30 years if they continue at their current rate. Each increase might not be much but add them altogether and it's some truly amazing results.

      Thanks for stopping by!

      Delete
  4. Love MMM and have owned it for about 8 years. I plan to keep this name for the foreseeable future. Just when the world seems to be falling apart (if you believe the sensationalist news headlines) MMM raises dividends at a time when massive headwinds are in place for many U.S. companies. And right before the MMM increase, ADM announced a 7.1% increase. Stick with sustainable dividends and even in the worst of times companies can continue to pay you and give you a raise. Thanks for sharing.

    ReplyDelete
    Replies
    1. DivHut,

      I had my eye on 3M for the first couple years of my investing journey but never pulled the trigger because it always seemed a bit too expensive. Ever since I have though I can say I'm more than pleased with the results. They've given me 29.8% cumulative dividend growth since I initiated my position which is awesome since it's only been about 1.5 years of ownership. That's going to be some truly amazing growth another 5-10 years down the road.

      Thanks for stopping by!

      Delete
  5. Why have I never bought 3M? This is a question to myself. I always overlook this stock for some reason, yet it continues to payout to shareholders. It's time for me to take another look. Thanks for sharing.

    ReplyDelete
    Replies
    1. Investment Hunting,

      I was thinking the same thing a couple years ago and then finally added some shares. I knew it wasn't the best value but 3M should be a consistent long term winner and I've been very pleased with the results so far. It's hard to be upset with a 7.8% IRR on my 3M holdings and 29.8% organic growth in the dividend.

      Thanks for stopping by!

      Delete