Dividend Growth Investing at Work - Can You Hear Me Now?
|Getting a pay raise while sitting on the couch? Sign me up! Thanks Verizon Communications for the pay bump!|
Last Thursday, September 1st, the Board of Directors of Verizon Communications (VZ) announced another increase to their quarterly dividend. The new quarterly payout is $0.5775 compared to the previous payout of $0.565. That's an unspectacular, but fully expected 2.2% increase. Verizon is a Dividend Contender with 11 consecutive years of dividend increases. Shares currently yield 4.32%.
Since I own 43 shares of Verizon Communications in my FI Portfolio this raise increased my forward 12-month dividends by $2.15. This is the 3rd dividend increase I've received from Verizon since initiating a position in early 2014.
Cumulatively my income from Verizon has increased by 9.0%!!! That's from dividend increases alone. According to USInflationCalculator the total rate of inflation over the same time period is just 3.3% so Verizon is far exceeding inflation with dividend growth and even pays a solid yield to boot.
Verizon has increased dividends every year since 2005. Although their streak of paying the same or higher annual dividends dates back to 1984. Verizon did pay the same payout for 7 straight years from 1998-2004.
Verizon hasn't wowed investors with high dividend growth although that's made up for with a consistently higher dividend yield. Since initiating the dividend in 1984 there's only been 9 years with dividend growth higher than just 5%. Since 2010 the yearly dividend growth has been in the range of 2-3.5%.
Looking at earnings per share, Verizon's dividend was on very shaky ground in 2009 through 2012 with payout ratios above 100% every year and 2012 even crossed over 650%. However, it's important to keep in mind that earnings aren't necessarily a good metric for some companies.
Companies that have large capital expenditures, like Verizon, have large depreciation expenses that reduce their net income. However, depreciation is a non-cash expense that has no effect on the company's cold hard cash. That's why free cash flow is a better measuring stick for Verizon.
The free cash flow payout ratio has typically been in the 40-60% range since 2006, although 2015 did see a 102% payout ratio.
Verizon, as well as many of the stable yielding companies, have seen significant price appreciation due to the low interest rate environment that continues to persist. Verizon is still trading around my fair value calculation, full analysis here, although there's not much, if any, margin of safety at the current price.
My forward dividends increased by $2.15 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 $70 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 36 increases from 29 companies increasing my forward 12-month dividends by $204.97.
My FI Portfolio's forward-12 month dividends increased to $5,653.70 and including my higher Loyal3 portfolio's forward dividends of $65.06 brings my total taxable account forward dividends to $5,718.76.
Do you own shares of Verizon Communications? Are you satisfied with the dividend growth considering Verizon's current yield of 4.3%?
Please share your thoughts below!
Image courtesy of digitalart on FreeDigitalPhotos.net.