Dividend Growth Investing at Work - Can You Hear Me Now?
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| Getting a pay raise while sitting on the couch? Sign me up! Thanks Verizon Communications for the pay bump! |
Last Thursday, September 1st, the Board of Directors of Verizon Communications (VZ) announced another increase to their quarterly dividend. The new quarterly payout is $0.5775 compared to the previous payout of $0.565. That's an unspectacular, but fully expected 2.2% increase. Verizon is a Dividend Contender with 11 consecutive years of dividend increases. Shares currently yield 4.32%.
Since I own 43 shares of Verizon Communications in my FI Portfolio this raise increased my forward 12-month dividends by $2.15. This is the 3rd dividend increase I've received from Verizon since initiating a position in early 2014.
Cumulatively my income from Verizon has increased by 9.0%!!! That's from dividend increases alone. According to USInflationCalculator the total rate of inflation over the same time period is just 3.3% so Verizon is far exceeding inflation with dividend growth and even pays a solid yield to boot.
Verizon has increased dividends every year since 2005. Although their streak of paying the same or higher annual dividends dates back to 1984. Verizon did pay the same payout for 7 straight years from 1998-2004.
Verizon hasn't wowed investors with high dividend growth although that's made up for with a consistently higher dividend yield. Since initiating the dividend in 1984 there's only been 9 years with dividend growth higher than just 5%. Since 2010 the yearly dividend growth has been in the range of 2-3.5%.
Looking at earnings per share, Verizon's dividend was on very shaky ground in 2009 through 2012 with payout ratios above 100% every year and 2012 even crossed over 650%. However, it's important to keep in mind that earnings aren't necessarily a good metric for some companies.
Companies that have large capital expenditures, like Verizon, have large depreciation expenses that reduce their net income. However, depreciation is a non-cash expense that has no effect on the company's cold hard cash. That's why free cash flow is a better measuring stick for Verizon.
The free cash flow payout ratio has typically been in the 40-60% range since 2006, although 2015 did see a 102% payout ratio.
Verizon, as well as many of the stable yielding companies, have seen significant price appreciation due to the low interest rate environment that continues to persist. Verizon is still trading around my fair value calculation, full analysis here, although there's not much, if any, margin of safety at the current price.
Wrap Up
My forward dividends increased by $2.15 with me doing nothing. That's right, absolutely nothing to contribute to their operations. Based on my portfolio's current yield of 2.94% this raise is like I invested an extra $70 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 36 increases from 29 companies increasing my forward 12-month dividends by $204.97.
My FI Portfolio's forward-12 month dividends increased to $5,653.70 and including my higher Loyal3 portfolio's forward dividends of $65.06 brings my total taxable account forward dividends to $5,718.76.
Do you own shares of Verizon Communications? Are you satisfied with the dividend growth considering Verizon's current yield of 4.3%?
Please share your thoughts below!
Image courtesy of digitalart on FreeDigitalPhotos.net.
"Based on my portfolio's current yield of 2.94% this raise is like I invested an extra $70 in capital. Except that I didn't!"
ReplyDeleteThats the coolest statement I've seen in quite a while!~ :-)
I don't VZ ... the yield is solid and I can understand why you're invested!
Ferdi,
DeleteI really like looking at it that way to really put those dividend raises in perspective because just seeing the dollar value of the increase doesn't do it.
I like VZ because the yield is solid although the growth isn't exactly spectacular. That's the burden of a company that is going to constantly have high capex year after year especially in a saturated market. The option premiums are likely on the low side but when you add that on top of the solid yield I would think you could generate solid option premium as well as the dividends with VZ since it's typically fairly range bound.
All the best.
I don't VZ either
ReplyDeleteWay to many stocks not enough cash is my problem. Solid company as I've debated getting it a few times but other companies have won out
Soon though I think.
D&H,
DeleteI think that's a common theme with every dividend growth investor. I think VZ is a pretty solid choice for a portfolio, although the dividend growth isn't likely to blow anyone away. I'm expecting 2-3% raises for the next few years as well while debt gets handled. That yield is nice though considering how richly valued most dividend payers are in this market.
All the best.
I don't own any VZ either, but I may be investing in them soon. I think the infrastructure investments surrounding 5G will really boost both VZ and T's profits over the next coming years. We can't expect much dividend growth, but I bet it will be enough to match at least match inflation.
ReplyDeleteTwoInvesting,
DeleteI own and like both VZ and T. The yields are typically solid and they'll march forward most years, although maybe painfully slow. But if you're looking for T or VZ to deliver 10% annual growth that's your own fault.
All the best.