Friday, February 19, 2016

Dividend Growth Investing at Work - 43 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?

Yesterday the Board of Directors at Wal-Mart Stores (WMT) approved an increase to their quarterly dividend.  The previous payment was $0.49 and the new payment is $0.50.  That's a pretty small 2.04% raise, but it's still a raise.  The increase marks the 43rd consecutive year of increases putting them well onto the Dividend Champions list.  The current yield on Wal-Mart shares stands at 3.12%.

I own 63.415 shares of Wal-Mart in my FI Portfolio so this dividend increase grew my forward 12-month dividends by $2.54.  This is the 3rd dividend increase I've received from Wal-Mart since initiating a position in June 2013.  Cumulatively my income has increased by 6.38%.  That's nothing spectacular, but it's still beating inflation which according to USInflationCalculator sits at 1.7% for 2013 through 2015.

The average analyst estimate for earnings for Wal-Mart for fiscal year 2017 stands at $4.17 so the new dividend rate represents a forward payout ratio of 48.0%.  Based on the TTM free cash flow and the current diluted weighted shares outstanding the new dividend rate represents a 40.6% free cash flow payout ratio.


Wal-Mart was once a dividend growth all-star with double digit increases being the norm.  However, the last three increases haven't been anywhere close to what investors were used to with just 2.0% raises each year.  Slower dividend growth should have been expected though considering that the payout ratio had increased during the rapid growth phase and most importantly due to Wal-Mart's struggles to grow the underlying business.

Wal-Mart is in the middle of a turnaround to improve shopper satisfaction and try to increase their online presence to boost sales.  It's a multi-year plan so I wouldn't expect dividend growth in 2018 to be much more than the recent past either barring a quicker turnaround than forecast.  There was some encouraging news from their 4Q earnings release with revenue increasing 2.2% on a constant currency basis, comp sales improving 0.6%, increased e-commerce sales of 8% on a constant currency basis as well as an increase in traffic to their stores.  Overall the quarter wasn't impressive, but Wal-Mart is in the early stages of their turnaround project so time will tell how well they do.

My forward dividends increased by $2.54 with me doing nothing.  That's right, absolutely nothing to contribute to their operations well other than shop at their stores.  Based on my portfolio's current yield of 3.24% this raise is like I invested an extra $78 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 7 dividend increases thus far in 2016 adding $36.96 to my forward 12-month dividends.

February looks to be a solid month for dividend increases with 4 already announced and 2 more expected.

My FI Portfolio's forward-12 month dividends are up to $5,531.96 and including my Loyal3 portfolio's forward dividends of $62.06 brings my total taxable account forward dividends to $5,594.02.

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.

4 comments:

  1. Fellow WMT shareholder, though I've had my shares for a lot less time than you. I agree, the increase was not what I expected, however I'm a patient investor. As long as there is no cut or freeze, I'm fine. Still in the accumulation phase!

    I will hold WMT for life. They are the cornerstone of the American economy, and with revenues of half a TRILLION dollars, I don't think they're going anywhere anytime soon!

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    1. Mr. TOL,

      Given the transition period that they're in I didn't expect anything more than what we'd been seeing and that will likely be the case again in 2017 when they bump up the dividend again unless the timeline moves up on their plan.

      It really is amazing to see that they're revenues at 1/2 a trillion dollars. That's an insane amount of money.

      Thanks for stopping by!

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  2. As a fellow WMT shareholder, looking forward to receiving another raise! Hard to bet against a Dividend Champion with 43 consecutive years of dividend increase. WMT will be in our family portfolio for years to come! :)

    Thanks for sharing. AFFJ

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    1. AFFJ,

      The raise was pretty unspectacular but I don't think it caught anyone by surprise. Plus it's still ahead of inflation so at least we have that to hang our hats on.

      Thanks for stopping by!

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