Thursday, November 3, 2016

Dividend Growth Investing at Work - Starting November With a Pay Raise

Concept of how dividend growth investing works, Emerson Electric, EMR
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Emerson Electric for another 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.

November got off to a great start with the Board of Directors at Emerson Electric (EMR) announcing another dividend increase in their storied history.  The new quarterly payout inched forward by $0.05 from $0.475 to $0.48.  That's a pretty measly 1.1% raise.  Emerson Electric is a Dividend Champion with 60 consecutive years of dividend growth.  Shares currently yield 3.79%.

Since I own 61.804 shares of Emerson Electric in my FI Portfolio this raise increased my forward 12-month dividends by $1.24.  This is the 5th dividend increase I've received from Emerson Electric since initiating a position in 2012.  Cumulatively my income from Emerson Electric has increased by an even 20%!!!  According to USInflationCalculator the total rate of inflation over the same time period is 5.2%.  Despite relatively meager total dividend growth from Emerson Electric they are still beating inflation by nearly 4x!




A larger version of the chart can be found here.

A few notes about Emerson Electric's dividend chart above.  I couldn't find a source that showed the quarterly payments from Emerson Electric since starting their dividend streak in 1956.  So no there wasn't a dividend cut in the early 1990's, the payments from 1956-1992 are annual payments and from 1993 on are quarterly payouts.

The thing that really sticks out to me about the dividend history is that the growth definitely comes in waves.  It's not uncommon for Emerson Electric to just inch the dividend higher for a few years before rewarding investors with bigger increases for a couple years.  That shouldn't be too surprising considering they are a highly cyclical, industrial company.
dividend growth investing, dividend growth rates, Emerson Electric, EMR, industrial
Emerson Electric (EMR) Annual Dividend and Rolling Dividend Growth Rates Since 1956

An interactive graphical version of the previous chart can be found here.

The annual dividends and dividend growth rates are based off fiscal year payouts as opposed to the normal calendar year periods that I report them in.

One thing you'll notice if you look at the dividend growth for any given year is the lack of consistency.  Over the last 10 fiscal years the 1 year dividend growth has ranged from an excellent 17.98% to a meager 1.06%.  Heck, even the last 2 years have seen a big change from 9.30% to 1.06%.  

The lack of consistency from year to year is a bit frustrating as an investor.  However, do keep in mind that Emerson Electric has been there and done that since 1956 and as I mentioned earlier their business is quite cyclical so fluctuating dividend growth shouldn't come as much of a surprise.  

When dealing with cyclical companies I prefer to look at dividend growth at the 5 and 10 year intervals to smooth out the ups and downs of the business.  This gives a better picture of what Emerson Electric has done in the past throughout the entirety of the business cycle.  The last ten 10 year dividend growth rates show much more consistency and a tighter range of outcomes ranging from 6.07% to 8.52%.  I'm fairly confident over most 10 year periods dividend growth should be able to hit the 5-8% range.

Wrap Up

My forward dividends increased by $1.24 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.09% this raise is like I invested an extra $40 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 47 increases from 38 companies increasing my forward 12-month dividends by $262.24.

My FI Portfolio's forward-12 month dividends increased to $5,450.93 and including my Loyal3 portfolio's forward dividends of $66.20 brings my total taxable account forward dividends to $5,517.13.  My Roth IRA's forward 12-month dividends remain at $241.75.

Expected Raises in November:

Starbucks Corporation (SBUX)
Becton, Dickinson & Company (BDX)

Do you own shares of Emerson Electric?  Do you think that Emerson Electric will return to faster dividend growth in the coming years or can we expect low dividend growth for the time being?

Please share your thoughts below.

Image courtesy of digitalart on FreeDigitalPhotos.net.

2 comments:

  1. Great info JC. EMR dividend increases vs inflation are really nice. I like the way you presented this information. It really helps to prove the dividend model. It also shows that we should be seeking out companies with increasing dividends as a hedge against inflation.

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    1. OH,

      EMR's dividend growth has been lackluster with the last few years being rather tough, but what's surprising is just how much better than inflation it's still doing. The more cyclical companies are likely to have larger fluctuations in the dividend growth from year to year but over the long run it should work out just fine if the company is solid. You really need to take a full business cycle approach to examining these companies.

      Thanks for stopping by!

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