Dividend Increase | US Bancorp
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| Getting a pay raise while sitting on the couch? Sign me up! Thanks USB for another dividend increase! |
That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends. You mean I get a pay raise just for owning a small piece of a company? 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.
On June 27th the second round of the CCAR tests came out that covered the capital return plans, dividends and share repurchases, for 18 large banks that operate in the United States. For CCAR, US Bancorp intends to increase the quarterly dividend payment from $0.37 up to $0.42 per share per quarter. That's a huge 13.5%! While it's not official yet I have to believe that they have every intention of following through with the raise. US Bancorp has increased their dividend payment for 8 consecutive years giving them the title of Dividend Challenger. Shares currently yield 3.23% based on the new quarterly payout.
Since I own 20.307 shares of US Bancorp in my FI Portfolio this raise increased my forward 12-month dividends by $4.06. This is the 1st dividend increase I've received from US Bancorp since initiating a position in September 2018.
A full screen version of this chart can be found here.
Historically US Bancorp has been a fairly rapid dividend grower. Of course their dividend history looks ugly in the 2009/2010 period much like every other financial institutions' looks. The annual run rate of the new dividend payout still hasn't eclipsed the 2008 high, but is getting awfully close. Coming out of the "Great Recession" USB's dividend growth has been fantastic although I do expect it to slow going forward from these lofty levels.
The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1998 can be found in the following chart.
A full screen version of this chart can be found here.
*2019's dividend growth assumes the new quarterly payout of $0.42 per share is maintained for the rest of 2019.
Based on dividend yield theory US Bancorp appears to be undervalued with a forward dividend yield of ~3.2%. That's significantly higher than the 5 year moving average of just 2.4%. I believe that US Bancorp is a candidate for further research given the significant deviation of the forward yield from the 5 year moving average.
For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.
Wrap Up
This raise increased my forward dividends by $4.06 with me doing nothing. That's right, absolutely nothing to contribute to their operations. Based on my portfolio's current yield of 2.91% this raise is like I invested an extra $140 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 2019 I've received 26 total increases from 24 of the 54 companies in my FI Portfolio. Combined those increases have raised my forward 12-month dividends by $170.94.
My FI Portfolio's forward-12 month dividends increased to $6,942.85. Including my FolioFirst portfolio's forward dividends of $100.12 brings my total taxable accounts dividends to $7,042.97. My Roth IRA's forward 12-month dividends remain at $539.83.
Welp!?!? So much for being over $7k in forward dividends for my FI Portfolio. I decided to trim one of my positions last week and hope to get a write up done about it later this week. Long story short I feel the valuation has run too far for the business pushing the yield down much to low and that debt has been substantially increased on the balance sheet adding risk to the position and what I think will be lower dividend growth moving forward.
I've also started compiling dividend data on many of the companies that I own or would like to own. US Bancorp's can be found here which includes the dividend history (as far back as I can find without really hunting it down), rolling dividend growth rates and dividend yield theory. To see other companies that I've already gathered the data on you can check out the Dividend Companies page. Check it out and let me know what you think.
Do you own shares of US Bancorp? What about any of the other big US banks?
Please share your thoughts below.
Big Bank dividend increases were absolutely insane this week. Looks like the Fed gave their aggressive shareholder returns the green light. Hopefully this doesn't lead to reckless moves by the institutions and push them back into their pre-financial crisis state.
ReplyDeleteBert
Bert,
DeleteLoved seeing all those dividend increases getting released last Thursday. Especially since I own shares in JPM, WFC, USB and BAC and each had a 10%+ raise.
Regarding whether this will lead to reckless moves, I think that ship has sailed. This last decade of low interest rates has burdened just about every government and corporation with debt. Capital has been way too plentiful and whenever the credit cycle changes look out below especially for the businesses that can't actually support the debts.
Thanks for stopping by!