Dividend Increase | L3Harris Technologies (LHX)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks L3Harris for another dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

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 August 20th the Board of Directors at L3Harris Technologies (LHX) *Sheesh talk about a mouthful!* approved an increase to the quarterly dividend payment.  The dividend was increased from $0.685 up to $0.75 per share.  That's a solid 9.5% increase.  L3Harris is a Dividend Contender with 18 consecutive years of dividend increases.  Shares currently yield 1.4% based on the new annualized payout.

The newly increased dividend will be payable on September 18th to shareholders of record as of September 4th.

Since I own 60.506 shares of L3Harris in my FI Portfolio, this raise increased my forward 12-month dividends by $15.73.  This is the 7th dividend increase I've received from L3Harris since initiating a position in August 2012.  

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

L3Harris' dividend history is pretty solid although there was a dividend cut back in 1999 followed by 11 straight quarters of a stagnant dividend.  However, since then Harris L3Harris has been on a tear giving owners raises every single year starting in 2002.

Since the 18 year streak started, L3Harris' 1-year dividend growth rate has ranged from 6.2% to 38.5% with a median growth rate of 17.2%.  Of the 14 rolling 5-year periods since the streak resumed, annualized dividend growth has ranged from 9.5% to 32.0% with a median of 19.8%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1993 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 $0.75 per share is maintained for the rest of 2019.

Based on dividend yield theory, L3Harris's current yield of 1.40% is well below the 5 year moving average of 2.05%.  Dividend yield theory suggests a fair value price of $146.34 or ~32% lower than current prices.  In L3Harris' case I'm less inclined to use dividend yield theory since the 2 companies recently completed their merger in July so it will take some time to determine what kind of dividend yield L3Harris might "normally" trade for.

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.

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

Based on earnings estimate for FY 2019 of $9.59, L3Harris is trading at a 22.3x P/E ratio.  Looking to FY 2020 with estimates of $11.06 the forward P/E ratio sits at 19.3x.  The new annualized dividend payment of $3.00 would represent a earnings per share payout ratio of 31% and 27%, respectively, based on the estimates above.  

While L3Harris does have a dividend cut in its history, that was nearly 20 years ago.  Since then L3Harris has delivered excellent dividend growth.  Even better is that the combined L3Harris is a behemoth in the defense/communication industry and with a very conservative payout ratio around 30% the dividend is well covered.  On top of all that the P/E ratios are relatively attractive considering that the 5 year earnings growth estimate is 17.7% per year.  I believe that L3Harris is an attractive candidate for further research.

Wrap Up

This raise increased my forward dividends by $15.73 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.97% this raise is like I invested an extra $530 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 34 raises from 30 of the companies in my FI Portfolio.  Combined the dividend increases have boosted my forward 12-month dividends by $244.97.

My FI Portfolio's forward-12 month dividends climbed to $7,418.41.  Including my FolioFirst portfolio's forward dividends of $100.01 brings my total taxable accounts dividends to $7,518.30.  My Roth IRA's forward 12-month dividends remain at $613.10.  My Rollover IRA's forward dividends increased to $1,999.85.  Across all accounts I can expect to receive $10,271.25 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  L3Harris Technologies' can be found here which includes the dividend history (as far back as I can find without spending hours 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 L3Harris?  

Please share your thoughts below.