Sunday, March 5, 2017

Dividend Growth Investing at Work - A B&M Retailer That's Doing Just Fine

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Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Ross Stores 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.

This past the Board of Directors at Ross Stores (ROST) announced an increase to their dividend payment.  The dividend was boost $0.025 per quarter to $0.16.  That's a huge 18.5% increase from the previous $0.135 payment.  As of the end of 2016 Ross Stores had increased dividends for 22 consecutive years giving them the title of Dividend Contender.  Shares currently yield 0.93% based on the new dividend rate.  

Since I own 56.131 shares of Ross in my FI Portfolio this raise increased my forward 12-month dividends by $5.61.  This is the 2nd dividend increase that I've received from Ross Stores since initiating a position in mid 2015.  Cumulatively my Ross Stores dividends have risen by 36.2% from dividend growth alone!  According to USInflationCalculator the total rate of inflation over the same period is just 2.5%.  Ross Stores is outpacing inflation by 14.5x so yeah I'm more than happy to be a shareholder.


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

Ross Stores' 22 year dividend growth streak has been a thing of beauty.  The "worst" one year dividend growth rate has come in at 11.7%.  Just think about that for a second.  Even better news is that there's still more room to run for the dividend since for the fiscal year ended January 2017 the free cash flow payout ratio was just 17%.  

The following table shows the annual dividend from Ross Stores and the rolling 1-, 3-, 5- and 10-year dividend growth rates.
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Ross Stores (ROST) Annual Dividend and Rolling Dividend Growth Rates
*2017's annual dividend assumes 4 payments at the new $0.16 per share per quarter payout.

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

After Target's disappointing results that were also released on Tuesday I've started to change my tune regarding brick and mortar retail.  The way I see it is that you either need to be a luxury retailer or the lowest cost retailer, but the middle ground is going to have a hard time.  Does anyone else share those same thoughts or am I way off base?

Wrap Up

My forward dividends increased by $5.61 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.90% this raise is like I invested an extra $193 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 10 dividend raises from the companies that I own increasing my forward dividends by $55.78.

Previous raises announced this month:
3M Company (MMM) (Stock Analysis)
PepsiCo, Inc. (PEP) (Stock Analysis)
The Coca-Cola Company (KO) 
T. Rowe Price (TROW)
Wal-Mart Stors, Inc. (WMT) (Stock Analysis)
Bank of Nova Scotia (BNS)

My FI Portfolio's forward-12 month dividends increased to $5,604.36.  Including my Loyal3 portfolio's forward dividends of $69.09 brings my total taxable accounts dividends to $5,673.45.  My Roth IRA's forward 12-month dividends are at $283.30.

Do you own Ross Stores or any other discount retailers?  Do you share my thoughts that both high end and low end B&M retail should be fine, but the middle ground is going to be running up hill?

Please share your thoughts below.

Image source

2 comments:

  1. That's a pretty intriguing historical DGR although I guess it's easier to grow it at such a clip when you start with such a slow number. Their yield is still quite low but they do have plenty of room to grow it.

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  2. I own Ross and have been very pleased with how they've done so far. On top of that I love the dividend increase this year. Huge increases make me a very happy person :)

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