Friday, October 14, 2016

Dividend Growth Investing at Work - 4 Raises? Yes, Please!

Concept of how dividend growth investing works, health care, OHI, REIT
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Omega Healthcare for a 4th raise this year!
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.

There's not much better combinations out there than health care and real estate.  Yesterday, the Board of Directors at Omega Healthcare Investors (OHI) announced a dividend increase.  The dividend was raised from $0.60 to $0.61 or 1.7%.  Omega Healthcare Investors is a Dividend Contender with 14 consecutive years of dividend growth.  Shares currently yield 7.35%.

A 1.7% raise might not sound like something to get too excited about; however, this raise is also the 4th raise this year.  Omega likes the consistent increase approach and prefers to give investors the smaller incremental raises more often than just one larger raise each year.  Personally I like that.  The dividend has been raised every...single...quarter since 3Q2012.  That's 17 consecutive quarterly raises.

Looking at the 4Q2015 the dividend was only $0.56.  So in just a years time the dividend has grown 8.9%.  Not bad considering the shares are yielding as high as they do.

Since I own 76.287 shares of Omega Healthcare Investors in my FI Portfolio this raise increased my forward 12-month dividends by $3.05.  This is the 6th dividend increase I've received from Omega since initiating a position in early 2015.  Cumulatively my income from Omega has increased by 13%!!!  According to USInflationCalculator the total rate of inflation over the same time period is just 1.6% so Omega Healthcare is absolutely crushing inflation over the same period.




It might look like there was a dip in the dividend in early 2015; however, that was due to the payout being split into two payments due to the Aviv REIT merger.  The combined 2Q payout was actually $0.54 which was $0.01 higher than the 1Q payment.

That's an impressive and consistent streak of rising dividends.  One thing to note is that the dividend was maintained at $0.30 for 7 quarters during 2008/09; however, the annual payout streak was maintained.

dividend growth investing, dividend growth rates, Omega Healthcare Investors, OHI
Omega Healthcare Investors (OHI) Annual Dividend and Rolling Dividend Growth Rates Since 2003
An interactive graphical version of the previous chart can be found here.

While earnings per share are traditionally the measuring stick to determine the safety of a dividend, that's not the case for REITs.  REITs have large depreciation costs that are a drag on their earnings per share; however, no cash is actually leaving their coffers.  Such is the case for Omega Healthcare Investors and why we'll look at adjusted funds from operation instead.


dividend growth investing, safety, payout ratios
Omega Healthcare Investors (OHI) 2016 Quarterly and Full Year AFFO Payout Ratios
The payout ratio looks high; however, in order to maintain the favorable REIT status these businesses must payout at least 90% of taxable income.  That pushes the payout ratios high, but the 70% area still leaves a large cushion in case of a slip up.  

Wrap Up


My forward dividends increased by $3.05 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 $100 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 better than hearing news of a dividend increase.  So far this year I've received 42 increases from 33 companies increasing my forward 12-month dividends by $243.92.

My FI Portfolio's forward-12 month dividends increased to $5,422.30 and including my Loyal3 portfolio's forward dividends of $65.50 brings my total taxable account forward dividends to $5,487.80.  My Roth IRA's forward 12-month dividends are at $240.84.

Expected Raises in October:

Aflac (AFL)
Visa (V)

Starbucks (SBUX)

Do you own shares of Omega Healthcare Investors?  Do you enjoy that slow and steady climb quarter after quarter or do you prefer to get your raise all at once during the year?

Please share your thoughts below.

Image courtesy of digitalart on FreeDigitalPhotos.net.

4 comments:

  1. A raise is a raise to me doesn't matter when I get them. Next best thing is special dividends when they occur

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    1. D&H,

      While the raises don't make that much of a difference I love seeing those consistent increases quarter after quarter. Surprisingly I've only had 1 special dividend that I can think of in my ~5 years of investing.

      Thanks for stopping by!

      Delete
  2. While I don't own OHI, I will definitely need to research them. I am a huge fan of paying me each month or quarter while raising the dividends. Why wait we when you can pay me now :)

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