Thursday, April 28, 2016

Dividend Growth Investing at Work - A Double Dose Of Increases

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?

Based on the dividend increase history of my holdings April was expected to be a great month for dividend growth.  Among my holdings there were at least 7 increases that I was expecting and a possibility of double digit increases if things broke right.  Wednesday brought another increase announcement, there was even one I missed from Monday, and marked the 6th and 7th pay raises I've received this month alone among my FI Portfolio holdings.

Exxon Mobil Corporation (XOM)

On Wednesday afternoon the Board of Directors for Exxon Mobil approved an increase in the quarterly dividend from $0.73 to $0.75.  That's a 2.7% raise which came in lower than I was expecting, but it's still welcomed considering the beating the oil field has taken over the last 1.5 years.  This is the 34th consecutive year of dividend increases from the oil super major and places them well in the Dividend Champion category.  Shares current yield 3.39%.

Since I own 66.722 shares of Exxon Mobil in my FI Portfolio this raise increased my forward 12-month dividends by $5.34.  This is the 3rd dividend increase I've received from Exxon Mobil since initiating a position in 2013.  From dividend increases alone my Exxon Mobil income has increased by 19.1%!  According to USInflationCalculator the total inflation over that same time period is just 2.2% so Exxon Mobil is far outpacing the rate of inflation and increasing my purchasing power at a steady clip.

The following table shows the annual dividend payments, year over year increase, and the rolling 5 year compound growth rate for Exxon Mobil since 2001.

Exxon Mobil clearly has a wonderful history of dividend increases and surprisingly enough the rolling 5 year growth rates have been increasing over time.

The difficulties of the oil field have been well documented over the last 1.5 years with the price of oil plummeting to below $30 and every corner of the oil field struggling to cope.  This has led to reduced capital expenditures which are a necessary requirement for an industry built on constantly finding new reserves.

Due to the large price decline and slow recovery, earnings and cash flow of anything oil have been strained bringing the sustainability of dividends in question.  Exxon Mobil earned $3.85 during 2015 and the new dividend would work out to a 77.9% payout ratio.  Based on last years free cash flow of $3,854 M the new dividend would represent a 325.5% payout ratio.  Yikes!  Things don't look much better either for 2016 with the average analyst estimate for earnings per share at just $2.48 which would put the payout ratio based on the new dividend rate at 121.0%.

While things don't look pretty right now the oil field can turn on a dime and the price of oil has slowly been climbing and could keep moving higher.  Even though oil has risen back in the $40's it's still a long ways away from making the super majors uber profitable.  Due to the high correlation of profits and cash flow to the price of the commodities it's important for these companies to maintain pristine balance sheets in the good times so they can access the credit markets to hold them over through the bad times.  Debt to equity levels nearly doubled from 2014 to 2015; however, they are still at a very reasonable and manageable level of 0.12.

United Technologies (UTX)

I missed this announcement on Monday but the Board of Directors at United Technologies approved an increase in the quarterly dividend from $0.64 to $0.66.  That's a 3.1% increase in the dividend and marks the 23rd consecutive year of dividend increases.  United Technologies is a Dividend Contender just 2 short years away from achieving Champion status.  Shares currently yield 2.49%.

I only own 14 shares of United Technologies in my FI Portfolio so this raise increased my forward 12-month dividends by $1.12.  This is the 2nd dividend increase I've received from United Technologies since initiating a position in 2014.  From dividend increases alone my United Technologies income has increased by 11.9%!  According to USInflationCalculator the total inflation over that same time period is just 0.6% so United Technologies is doing a great job increasing my purchasing power faster than inflation.

The following table shows the annual dividend payments, year over year increase, and the rolling 5 year compound growth rate for United Technologies since 2001.

Dividend growth has been slowing last few years which is something to watch out for in the future and this latest increase didn't inspire a lot of confidence.  But a raise is a raise so we'll have to wait and see how things develop.

During 2015 United Technologies earned $8.62 per share so the new dividend rate would be a 30.6% payout ratio.  Free cash flow for 2015 came in at $4,237 M which puts the new dividend at a free cash flow payout ratio of 54.7%.  If the analysts can be trusted low dividend growth should have been expected for this year.  The average analyst estimate for 2016 puts the earnings at $6.53 so the payout ratio will jump to 40.6% if that plays out.  There is some light at the end of the tunnel though as analysts are predicting 9.1% annualized growth of earnings over the next 5 years.

Wrap Up

My forward dividends increased by $6.46 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.98% this raise is like I invested an extra $217 in capital.  Except that I didn't!  Two of the companies I own just decided to send more cash 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!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

I was expecting just 7 increases during April, but have already received 7 thanks to the Wells Fargo increase that was a bit unexpected.  There's still one more to go, Johnson & Johnson, and the recent earnings release could bring about a higher than expected dividend increase.  So far this year I've received 21 increases from 19 companies increasing my forward 12-month dividends by $94.57.

Previous April Increases:
Procter & Gamble (PG)
Unilever (UL)
Omega Healthcare Investors (OHI)
International Business Machines (IBM)
Wells Fargo & Company (WFC)
Apple, Inc. (AAPL) *in Loyal3 Portfolio

My FI Portfolio's forward-12 month dividends are up to $5,530.14 and including my Loyal3 portfolio's forward dividends of $63.82 brings my total taxable account forward dividends to $5,593.96.

Have you been joining in on the dividend growth fun?  

Image courtesy of digitalart on


  1. I was actually a bit surprised to see XOM raise more than a penny but I'll take the .02 any day in this environment.

    p.s. - every time I come here I get this message
    "A username and password are being requested by The site says: "Protected""

  2. I just noticed that XOM's credit rating was lowered from AAA to AA+. The only AAA-rated stocks that remain are MSFT and JJJ...

    Congrats on the dividend increases!

    Take care
    FerdiS, DivGro

  3. Congrats on the raises buddy. ExxonMobil is a much more balanced company than many of their rivals. If I had owned it, instead of Chevron, I would not have sold our shares last week.

    I hope you are having a great week. We are in Omaha for the Berkshire deal, and the weather has been completely wild. Tornado sirens and hail storms the last two days.

  4. I hold a small position of UTX stock. I was unaware of the dividend raise, but I'll take it!

  5. Wow, it's amazing how these oil companies are still surviving base on the current oil market and the iran oil glut coming to effect.

    Congrats on dividend increase.