Friday, May 27, 2016

Dividend Growth Investing at Work - Banking On Higher Dividends

Concept of how dividend growth investing works

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?

I was only expecting one dividend raise this month, but in a nice surprise the Board of Directors at J.P. Morgan Chase (JPM) announced an increase to their quarterly dividend.  The previous dividend payout was $0.44 and was increased to $0.48.  That's a solid 9.1% increase!  This is the 7th consecutive year of dividend increases from J.P. Morgan Chase firmly marking them as a Dividend Challenger.  Shares currently yield 2.95%.

Since I own 22.638 shares of J.P. Morgan Chase in my Roth IRA this raise increased my forward 12-month dividends for that portfolio by $3.62.  This is the 5th dividend increase I've received from J.P. Morgan Chase since initiating a position in late 2011.  The cumulative dividend increases over that time have amounted to 92.0%!  That compares very favorably to the cumulative inflation over the same time period which clocks in at just 6.4% according to USInflationCalculator.

J.P. Morgan Chase's dividend history is spotty at best although since coming out of the Great Recession a consistency appears to have been started with dividend increases coming fairly regularly.
J.P. Morgan Chase Bank Quarterly Dividend Payouts Since 2001
J.P. Morgan Chase Bank (JPM) Quarterly Dividend Payouts Since 2001
The dividend was slashed in 2009 due to the fallout of the housing crisis and the subsequent financial crisis that resulted.  However, management was given the green light to start increasing the dividend once again in March 2011 and it took them only until May 2013 to reach the pre-crisis level of $0.38 per share.  The new dividend of $0.48 is now actually 26% higher than the pre-crisis high.

The ironic thing out of all of this is that J.P. Morgan Chase was not much of a dividend growth investment prior to the financial crisis.  Since March 2001 J.P. Morgan Chase had 24 straight quarters of making the same dividend payment before finally raising the dividend by 11.8%.  The dividend then stayed flat for 7 quarters as the housing bubble was unwinding and then slashed down to $0.05 in February 2009 in hopes of conserving cash to boost capital reserves.

Since then J.P. Morgan has been a strong and relatively consistent dividend grower although they still have to gain approval for their capital allocation plans from the Federal Reserve.

The new dividend payout represents a 32.5% payout ratio based off the trailing twelve months earnings per share of $5.90.  Based off the average analyst estimate of $5.67 for 2016 earnings the payout ratio would rise to 33.9%.

Wrap Up

My forward dividends increased by $3.62 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.82% this raise is like I invested an extra $128 in capital.  Except that I didn't!  One 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.

For a dividend growth investor there's not much that's better than hearing news of a dividend increase.  So far this year I've received 23 increases from 21 companies increasing my forward 12-month dividends by $111.93.

My FI Portfolio's forward-12 month dividends remained the same at $5,548.26 and including my Loyal3 portfolio's forward dividends of $63.76 brings my total taxable account forward dividends to $5,612.02.  My Roth IRA's forward 12-month dividends increased to $259.49.

How has May been for dividend increases after a busy April?

Image courtesy of digitalart on FreeDigitalPhotos.net.

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