Wednesday, August 31, 2016

Dividend Growth Investing at Work - Beaming Up Higher Dividends

Concept of how dividend growth investing works
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Harris Corporation 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 Monday, August 29th the Board of Directors of Harris Corporation (HRS) announced an increase to their quarterly dividend.  The new quarterly payment is $0.53 per share compared to the previous payout of $0.50.  That's a solid 6.0% increase.  Harris Corporation is a Dividend Contender with 15 consecutive years of dividend increases.  Shares currently yield 2.29%.

Harris Corporation isn't as well known as the like of Johnson & Johnson or many of the other dividend growth stalwarts; however, that doesn't mean you shouldn't know who they are.  As a quick overview Harris Corporation is essentially a communications company and operates in 4 segments: communication systems, critical networks, electronic systems, and space and intelligence systems.  Think secure radio communication for government and defense purposes, air traffic management, space launch support and so much more.
satellite dish representing secure communication channels

Since I own 82.506 shares of Harris in my FI Portfolio this raise increased my forward 12-month dividends by $9.90.  This is the 4th dividend increase I've received from Harris since initiating a position almost 4 years ago.  Cumulatively my income from Harris has increased by 43.2%!!!  That's from dividend increases alone.  According to USInflationCalculator the total rate of inflation over the same time period is just 4.8% so Harris is absolutely killing it in terms of increasing my purchasing power.


Over the last 2 years dividend growth has slowed down substantially from prior years.  From 2002 through 2014 the lowest year over year increase was 11.90%.  Whereas the last two years have seen increases less than 10%.
Harris Corporation Rolling Dividend Growth Rates
Harris Corporation (HRS) Annual Dividend and Growth Rates Since 2001
The payout ratios tell two vastly different stories which is why it's important to do the work yourself and look at things from multiple angles.  For many companies earnings and free cash flow are relatively close so the much more widely reported earnings figure is a good enough proxy for dividend safety.

However, sometimes you find companies that earnings are nowhere near the free cash flow values.  That's the case with Harris Corporation and if you only looked at the traditional payout ratio you might stay away from this excellent company.




Wrap Up


My forward dividends increased by $9.90 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.95% this raise is like I invested an extra $335 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 34 increases from 28 companies increasing my forward 12-month dividends by $201.29.

My FI Portfolio's forward-12 month dividends increased to $5,650.03 and including my higher Loyal3 portfolio's forward dividends of $65.05 brings my total taxable account forward dividends to $5,715.08.

Do you follow Harris Corporation?  Are you bullish on the growth of secure communications?  Please share your thoughts below. 

Image courtesy of digitalart on FreeDigitalPhotos.net.
Image courtesy of missisya on FreeDigitalPhotos.net

4 comments:

  1. While an increase of 6.19% is not so great compared with what the company paid in the past, it still handily beats inflation! Not bad at all. Congratulations! I love dividend increases!

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    1. Ferdi,

      Yeah it's definitely a big step down from what they've typically delivered so I need to investigate it more thoroughly. But you're right that it's still much better than inflation so I'm still coming out ahead. HRS is definitely a company where EPS and FCF tell a markedly different story to the reality of the company.

      Thanks for stopping by!

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  2. Excited to hear about the increase! I hadn't heard about this one yet. My annual dividends increased by $6.26, slightly more than last year.

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    1. Scott,

      It was a solid increase from HRS although I have to say it was a bit stingier than I expected. Hopefully they kick it back up next year, but they're working through some leverage now so dividend growth might stall out in this area. But there's no real complaints about a 6% raise.

      All the best.

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