Wednesday, May 4, 2016

Dividend Growth Investing at Work - 54 and Counting


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?

April was a great month for dividend increases with 7 already announced among the holdings in my FI Portfolio and the 8th and final one announced last week while I was out of town.  It sure is nice to see your income growing even while you're on vacation.  Last but certainly not least came from a company that is probably in every dividend growth portfolio.

Johnson & Johnson (JNJ)

On Thursday, April 28th the Board of Directors for Johnson & Johnson approved yet another increase to their quarterly dividend.  The new dividend payment is $0.80 which is a 6.67% increase from the prior $0.75 payout.  I was spot on with my forecast for Johnson & Johnson's dividend raise, although it honestly wasn't too difficult to forecast because they have one of the most consistent histories of increases.  This is the 54th consecutive year of dividend increases from Johnson & Johnson and places them well into Dividend Champion status.  Shares currently yield 2.84%.

Since I own 75.213 shares of Johnson & Johnson in my FI Portfolio this raise increased my forward 12-month dividends by $15.04.  This is the 3rd dividend increase I've received from Johnson & Johnson since initiating a position in 2013.  From dividend increases alone my income from Johnson & Johnson has increased by 21.2%!  According to USInflationCalculator the total inflation over that same time period is just 2.2% so Johnson & Johnson 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 Johnson & Johnson since 2001.


The consistency with Johnson & Johnson's dividend increases are truly phenomenal.  Although with the payout ratio based off earnings as well as free cash flow have crept above the 50% level so dividend increases are likely to continue to track true growth of the company.

The new quarterly dividend of $0.80 represents a 58.4% payout ratio based off the earnings per share for the last twelve months.  On a forward looking basis the average analyst estimate for earnings sits at $6.60 so the new dividend would be a 48.5% payout ratio.  Since dividends are real cash payments it's important to look at how much of cash flow the dividend takes up.  Over the last twelve months Johnson & Johnson generated $15,816 M in free cash flow so the new dividend payment of $0.80 would be a 56.7% free cash flow payout ratio based on the 2,800 M shares outstanding.  The dividend is still well covered by both earnings and free cash flow and there's no concerns regarding its safety.

Wrap Up

My forward dividends increased by $15.04 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.02% this raise is like I invested an extra $498 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.  Of course 8 raises in just one month makes for a really great month!  April is likely the largest month in terms of dividend increase announcements although I need to look to see what the rest of the year has in store.  So far this year I've received 22 increases from 20 companies increasing my forward 12-month dividends by $109.61.

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
Exxon Mobil Corporation (XOM)
United Technologies (UTX)

My FI Portfolio's forward-12 month dividends are up to $5,545.18 and including my Loyal3 portfolio's forward dividends of $63.82 brings my total taxable account forward dividends to $5,609.13.

Was April a boon for you for dividend growth?  

Image courtesy of digitalart on FreeDigitalPhotos.net.

6 comments:

  1. love it ,companies hiking the dividend,i have decent number of shares ,keep moving forward

    ReplyDelete
    Replies
    1. sri,

      I hope to build up my JNJ position even more but it sure is one of the greats and a staple amongst dividend growth investor portfolios.

      Thanks for stopping by!

      Delete
  2. Replies
    1. Gremlin,

      Couldn't agree more. I just wish I hadn't missed out on it a couple years back when it kept wallowing in the $60's.

      Thanks for stopping by!

      Delete
  3. Your title says it all... dividend growth investing at work. Working when you don't have to. JNJ is a machine... no doubt about that along with many other dividend raisers. It's nice to increase your passive income stream without having to invest a single extra penny. Nice to see I also hold a few of those dividend raisers. Thanks for sharing and hope all is well on your end.

    ReplyDelete
    Replies
    1. DivHut,

      When it comes to money/finance I can't think of much that's better than getting paid to not do work! There's been a lot going on over the last 1.5 weeks and I need to sit down and write up some posts discussing all of the changes. But despite all that the dividends keep rolling in! Love it!

      Thanks for stopping by!

      Delete