Dividend Growth Investing at Work - Expect More, Pay Less, Get Dividend Raises
|Getting a pay raise while sitting on the couch? Sign me up! Thanks Target for that 7.1% raise!|
June is shaping up to be a solid month for dividend payments, but what's really exciting to me is that June is also going to be an excellent month for dividend increases as well. Yesterday the Board of Directors at Target Corporation (TGT) announce an increase to their quarterly dividend. The prior payment was $0.56 and it's now been boosted up to $0.60. That's a solid 7.1% increase! This is the 49th consecutive year of dividend increases from Target placing them well into Dividend Champion status. For perspective, that's higher dividend payments every single year since 1967! Shares currently yield 3.50%.
Since I own 128.331 shares of Target Corporation in my FI Portfolio this raise increased my forward 12-month dividends by $20.53. This is the 4th dividend increase I've received from Target since initiating a position in 2012. The cumulative dividend increases over that time have amounted to 66.7%! According to USInflationCalculator the total rate of inflation over the same time period is just 4.2% so Target is increasing my income much faster than the negative drag of inflation.
Within my portfolio this increase also moved my Target Corporation position up into the $300 Club for annual dividends.
|Target Corporation Quarterly Dividend Payouts Since 2001|
|Target Corporation 1 and 5 Year Dividend Growth Rates Since 2001|
Target could make for an attractive candidate in the retail space based off it's current valuation. The share price has fallen recently due to declining earnings stemming from backlash to their decision on bathrooms within their stores. Consumers are typically quick to anger, but also relatively quick to forget and a couple years down the road I expect this to be just a blip on their long term record. Personally I don't understand why companies that have locations open to the public don't make their stand by just converting the existing bathrooms into the single occupancy "family" style restrooms each with their own toilet and sink. It seems like that would be the best solution to the controversial bathroom issue.
Back to the valuation. On a historical basis shares of Target could be an attractive candidate. The 5 year average P/E ratio is 17.0, but shares are currently trading at just a 12.9 P/E ratio. The current dividend yield around 3.5% also has shares undervalued with the 5 year average yield coming in at 2.5%.
Another way to look at the valuation is using the Gordon Growth Model. The following table shows the required dividend growth rate in order to provide varying annualized returns.
|Target Corporation Gordon Growth Model Valuations|
My forward dividends increased by $20.53 with me doing nothing. That's right, absolutely nothing to contribute to their operations. Based on my portfolio's current yield of 2.99% this raise is like I invested an extra $686 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 that's better than hearing news of a dividend increase. So far this year I've received 24 increases from 22 companies increasing my forward 12-month dividends by $132.46.
My FI Portfolio's forward-12 month dividends remained the same at $5,573.39 and including my Loyal3 portfolio's forward dividends of $63.88 brings my total taxable account forward dividends to $5,637.26.
Do you own shares of Target Corporation in your own portfolio? Were you happy with the dividend increase? Is the valuation compelling enough for you to take a deeper look at this Dividend Champion?
Image courtesy of digitalart on FreeDigitalPhotos.net.