Friday, March 3, 2017

Dividend Growth Investing at Work - Loonies Are Great Too

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Getting a pay raise while sitting on the couch?  Sign me up!  Thanks ScotiaBank 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 Scotia Bank (BNS) announced an increase to their dividend payment.  The dividend was increased from $0.74 CAD to $0.76 CAD.  That's a 2.7% increase from the previous payout.  This year will mark 7 consecutive years of dividend increases, in their home currency, giving them the title of Dividend Challenger.  Shares currently yield 3.92%.

At first glance that 2.7% increase isn't anything special, but if you look closer the increase is actually much better.  Bank of Nova Scotia has typically given 2 smaller raises throughout the year rather than one larger increase.  Personally I like that because I'm a sucker for positive reinforcement.  Compared to the same period last year the new payout is $0.04 higher or 5.6%.  

Since I own 25 shares of Bank of Nova Scotia in my FI Portfolio this raise increased my forward 12-month dividends by $1.50.  This is the 4th dividend increase that I've received from Scotia Bank since initiating a position in early 2015.  Cumulatively my Scotia Bank dividends have risen by 11.8% from dividend growth alone!  According to USInflationCalculator the total rate of inflation over the same period is just 2.5% so I'm a more than happy shareholder.


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

Scotia Bank has a tremendous history of steady dividend growth and one of the longest histories around of paying a dividend.  According to Scotia Bank's investor relations they have paid a dividend every year since 1833.  That's coming up on a 200 year history which is absolutely amazing considering there aren't even many companies that have been in business for 100 years.  

Scotia Bank was cautious in 2010 during the midst of the global financial crisis and declined to increase their dividend.  Considering all that was going on at the time and the fact that no one knew what was going to happen I see that as prudent on the part of management even if the dividend streak wasn't kept alive.  Since then though they've given investors 12 dividend increases increasing the quarterly payout by 55% in total.

The following table shows Bank of Nova Scotia's annual dividend payment, in Canadian dollars, as well as the rolling annual dividend growth rates.
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Bank of Nova Scotia (BNS) Annual Dividend and Rolling Dividend Growth Rates

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

With the strong US dollar I'm very much contemplating adding some of the Canadian dividend growth companies as a potential play on the USD:CAD spread tightening.  With Scotia Bank the yield is currently at 3.92% for US investors with a USD:CAD ratio of 1:0.75.  Should that move back up to parity the effective yield right now would jump to over 5.0% from FX alone.  

Wrap Up

My forward dividends increased by $1.50 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 $52 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 9 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 Stores, Inc. (WMT) (Stock Analysis)

My FI Portfolio's forward-12 month dividends increased to $5,598.75.  Including my Loyal3 portfolio's forward dividends of $69.09 brings my total taxable accounts dividends to $5,667.84.  My Roth IRA's forward 12-month dividends are at $283.30.

Do you own shares of Scotia Bank?  Do you think the Canadian dividend growers look attractive for U.S. based investors?

Please share your thoughts below.

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2 comments:

  1. Nice wrap up here, looks like you've got into Scotia Bank at the right time. Well done to you.

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    Replies
    1. BHL,

      I wish I had bought earlier, but that can be said for lots of the potential investments I had skipped over in prior years for other opportunities. I think the Canadian dividend growers could be attractive investments for US investors due to the strong USD and potential tailwind of a declining USD in the future to turbocharge the dividend growth. It's definitely something that I'm considering especially since the yield/growth profiles are already attractive in light of the FX rates.

      Thanks for stopping by!

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