Sunday, July 31, 2016

Dividend Growth Investing at Work - Dividends Are Sweet!

Concept of how dividend growth investing works
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Hershey Company for the pay raise!
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?  Dividend growth investing is far from a get rich quick investment strategy, rather you need to remain focused on the long term goal to be successful.

On Thursday, July 28th the Board of Directors of The Hershey Company (HSY) announced another increase to their quarterly dividend.  This one came as a bit of surprise to me since Hershey announced the raise last year in August rather than the typical July increase.  No worries though as long as the raise comes in!

The new quarterly payment is $0.618 per share compared to the previous payout of $0.583.  That's a solid 6.0% increase.  Hershey Company is a Dividend Challenger with 6 consecutive years of dividend increases.  Hershey kept their dividend payment flat from 2009 compared to 2008 ending their prior dividend growth streak.  Shares currently yield 2.23%.

Since I own 11 shares of Hershey in my FI Portfolio this raise increased my forward 12-month dividends by $1.54.  This is the 2nd dividend increase I've received from Hershey since initiating a position almost exactly a year ago.  Cumulatively my income from Hershey has increased by 15.5%!!!  According to USInflationCalculator the total rate of inflation over the same time period is just 1.7% so Hershey is absolutely killing it in terms of increasing my purchasing power.

Even with the pause in dividend growth during the "Financial Crisis" that chart looks wonderful.
Hershey Company (HSY) Annual Dividend and Growth Rates Since 2001
Hershey Company (HSY) Annual Dividend and Growth Rates Since 2001
The real power of dividend growth can be found in the previous table.  Yes, Hershey failed to increase their dividend in 2009.  BUT because the company was still strong and had wonderful brand equity they were able to continue growing the dividend once things settled down.  

The power of dividend growth that I'm speaking of can be found in the 5 year dividend growth rate column.  The worst one is 6.03% and that includes the small increase in 2008 and no increase in 2009.  I don't think you'll find too many people that would be upset with their income increasing 6% per year through those tumultuous economic times.

One bit of concern regarding Hershey is the payout ratio which has fluctuated a lot more than you'd expect for a company of their caliber.  Some of that is due to one off events and a struggling foreign expansion, but it's definitely something to keep an eye on going forward as the payout ratio could limit the potential for dividend growth.
Hershey Company (HSY) Dividend Payout Ratios Since 2006
Hershey Company (HSY) Dividend Payout Ratios Since 2006
The payout ratio based on earnings looks to be back in check based on the analyst estimates for 2016 and 2017.  The payout ratio is calculated as the current new rate of $0.618 * 4 divided by the earnings forecast.  For the current year the payout ratio would be 58% and for the following year 54%.

Wrap Up

My forward dividends increased by $1.54 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.94% this raise is like I invested an extra $50 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 32 increases from 26 companies increasing my forward 12-month dividends by $175.21.

My FI Portfolio's forward-12 month dividends increased to $5,621.61 and including my higher Loyal3 portfolio's forward dividends of $64.71 brings my total taxable account forward dividends to $5,686.31.

Previous increases announced this month:

Cummins Inc (CMI)
Walgreens-Boots Alliance (WBA)
Omega Healthcare Investors (OHI)
Realty Income (O)

Do you own shares of Hershey Company?  Is a dividend freeze in a company's history reason enough for you to never own the company?

Image courtesy of digitalart on


  1. While I'm not a HSY shareholder I totally agree with you that it's awesome getting dividend raises for basically doing nothing except for buying the stock in the first place. Nice to see many companies continuing to raise dividends even in a relatively weak economy.

    1. DivHut,

      It really is awesome to see those pay raises coming in.

      Thanks for stopping by!

  2. nice , getting a raise 32 times! Project that over 20 years and you will be styling. Keep it up!