Friday, February 24, 2017

Dividend Growth Investing at Work - A Raise Is A Raise No Matter How Small

Concept of how dividend growth investing works, health care, real estate
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Wal-Mart for the dividend increase!
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 Tuesday the Board of Directors at Wal-Mart Stores, Inc. (WMT) announced yet another increase to their dividend payout.  The dividend was increased by $0.01 to $0.51 per quarter.  That's a decent 2.0% increase.  This year will mark 44 consecutive years of dividend increases giving them the title of Dividend Champion.  Shares currently yield 2.84% based on the new dividend rate.

This week I also took at look at Wal-Mart's valuation and you can check out the analysis here.

Since I own 63.415 shares of Wal-Mart in my FI Portfolio this raise increased my forward 12-month dividends by $2.54.  This is the 4th dividend increase that I've received from Wal-Mart since initiating a position in 2013.  Cumulatively my Wal-Mart dividends have risen by 8.5% from dividend growth alone!  According to USInflationCalculator the total rate of inflation over the same period is just 4.2%.  


A full screen version of the chart can be found here.

Wal-Mart's dividend growth has been phenomenal for a long time with raises routinely 15% per year.  However, the last 4 increases have seen a noticeable decline with just $0.01 per quarter raises which has amounted to around 2.0% increases.  Much of that is due to the stall in top line growth, the market for Wal-Mart stores is pretty much saturated, as well as their slow move to investment in e-commerce.  That's led to a rising payout ratio that needs to be addressed.
dividend growth investing, dividend increase, financial independence
Wal-Mart Stores, Inc. (WMT) Annual Dividend and Rolling Dividend Growth Rates
An interactive graphical version of the previous chart can be found here.

Wrap Up

My forward dividends increased by $2.54 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.89% this raise is like I invested an extra $88 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.

Thus far in 2017 I've received 8 dividend raises from the companies that I own increasing my forward dividends by $54.28.

Previous raises announced this month:
3M Company (MMM) (Stock Analysis)
PepsiCo, Inc. (PEP) (Stock Analysis)
The Coca-Cola Company (KO) 
T. Rowe Price (TROW)

My FI Portfolio's forward-12 month dividends increased to $5,598.49.  Including my Loyal3 portfolio's forward dividends of $69.09 brings my total taxable accounts dividends to $5,667.51.  My Roth IRA's forward 12-month dividends are at $283.30.

Do you own shares of Wal-Mart?  Do you think they can right the ship and return to at least mid to high single digit raises?

Please share your thoughts below.

Image source

4 comments:

  1. Very good point and comment! I warn against chasing yield because a lot of those companies have not raised their dividend in years. I would rather a company which pays out a smaller dividend but increases yearly because you will come out ahead due to compounding. Plus steady dividend raises indicate a strong company!
    Visit me at TheDividendLife.com

    ReplyDelete
    Replies
    1. TDL,

      WMT is in an interesting place now because of their slow move towards ecommerce. I think there's a lot of noise involved right now as well with Trump talking about a BAT and not being able to write down the cost of goods if they're imported. That's a big concern for WMT because they import so much of what they end up selling. Over the long run though WMT should still do fine and I like the prudence from management to slow their dividend growth down the past few years to preserve cash and invest it into ecommerce. They still have room to increase their payout ratio so high DG will likely return possibly as soon as 2018 if ecommerce really picks up steam.

      Thanks for stopping by!

      Delete
  2. In the beginning, a lot of raises are small. After a while your yield on cost looks amazing. Holding MCD for the past decade has really shown that.

    ReplyDelete
    Replies
    1. Matt,

      They definitely add up over time. Despite owning WMT through it's slow growth phase I'm still sitting on 8%+ organic dividend growth. That's nothing special but it adds up over time.

      Thanks for stopping by!

      Delete