Wednesday, April 26, 2017

Dividend Growth Investing at Work - Betting on Buffett and Big Blue

Concept of how dividend growth investing works, health care, real estate
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks IBM 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.
April has historically been a great month for dividend increases among the companies that I own.  Last year saw 7 dividend raises in April alone and thus far this month there's been 3 announcements including this one.  

Yesterday the Board of Directors at IBM (IBM) announced an increase to their dividend.  The quarterly dividend was raised from $1.40 to $1.50 or a solid 7.1%.  This year will mark 22 consecutive years of dividend increases for IBM giving them the title of Dividend Contender.  Shares currently yield 3.74% based on the new annualized dividend.

Since I own 30.22 shares of IBM in my FI Portfolio this raise increased my forward 12-month dividends by $12.09.  This is the 4th dividend increase that I've received since becoming an owner in late 2013.  Through organic dividend growth alone IBM has increased my annual dividend payments by 58% cumulatively.  According to US Inflation Calculator the rate of inflation over that same time is just 4.7%.



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

IBM has done a superb job with growing their dividend throughout the years.  I think you'd be hard pressed to find someone that would complain about IBM's dividend growth.  From 2004 through 2017 the rolling 10 year dividend growth rate has been well above 10%.  Although given IBM's recent struggles over the past few years dividend growth is likely to be a bit more muted as evidenced by this year's 7% raise.
dividend growth investing, financial independence, pay raise
IBM (IBM) Annual Dividend and Rolling Dividend Growth Rates
*2017's dividend assumes 2 more payouts at the new $1.50 per share per quarter rate.

A full screen, graphical version of this chart can be found here.

Wrap Up

My forward dividends increased by $12.09 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 $415 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 17 dividend increases from 15 companies held in my FI Portfolio increasing my forward 12-month dividends by $92.93.

My FI Portfolio's forward-12 month dividends increased to $5,648.13.  Including my Loyal3 portfolio's forward dividends of $70.29 brings my total taxable accounts dividends to $5,718.42.  My Roth IRA's forward 12-month dividends remain at $286.59.

Previous Increases This Month:

Procter & Gamble (PG)
Omega Healthcare Investors (OHI)
Unilever plc (UL)

I'm expecting dividend increases to be announced by Johnson & Johnson (JNJ) and ExxonMobil (XOM) later this week.  If Johnson & Johnson's increase comes in at less than $0.85 per quarter I'll be disappointed; however, for Exxon I'd be just happy with a raise to $0.77.

Will IBM return to meaningful business growth and in turn dividend growth?  Or will they have to rely on share buybacks to generate the majority of their dividend growth?

Please share your thoughts below.

Image source

7 comments:

  1. True. But, IBM has not performed well in the last 5 years.

    Between April 27, 2012 & April 25, 2017, ROI is -20%.

    https://www.google.com/finance?cid=18241

    ReplyDelete
    Replies
    1. dividendgeek,

      IBM is definitely going through a change now which is showing up in their financials and their stock price. I think they have enough staying power to get through this rough patch which would mean now could be a decent time to buy. If the fundamentals start turning then IBM should outperform.

      Thanks for stopping by!

      Delete
  2. Did you receive the notice about Loyal3 being bought by FolioFirst? What are you plans for your Loyal3 holdings?

    ReplyDelete
    Replies
    1. I was planning to move it to my TD-ameritrade account.

      Delete
    2. Raymond,

      I'll be moving my Loyal3 funds to another brokerage because I don't want to pay that monthly fee at FolioFirst. I'm trying to decide which place, but I know I'll be moving the funds elsewhere.

      All the best.

      Delete
  3. PIP,

    You got your wish....XOM declared a $.77 dividend today!!

    MDP

    ReplyDelete
    Replies
    1. MDP,

      Got to love seeing that. I figured $0.77 was the most likely increase so I'm happy to see that's what we got. Now JNJ on the otherhand is a bit disappointing.

      All the best.

      Delete