Dividend Increase | Ecolab (ECL) Rollover IRA

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Ecolab for the 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 December 4th the Board of Directors at Ecolab (ECL) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.26 up to $0.47 per share.  That's a rather disappointing 2.2% raise.  Ecolab is a Dividend Champion with 28 consecutive years of dividend increases.  Shares currently yield 1.01% based on the new annualized payout.

You can check out my analysis on what I consider to be a great company over on Seeking Alpha.

The newly increased dividend will be payable on January 15th to shareholders of record as of December 17th.

Since I own 10 shares of Ecolab in my Rollover IRA, this raise increased my forward 12-month dividends by $0.40.  This is the 1st increase I've received since initiating a position in September 2019.

The 2% increase was surprising considering that I expected Ecolab to deliver 10%+ dividend growth more often than not.  However, management cited the upcoming spinoff of one of their divisions as the reason for the smaller than expected increase.  To say it's disappointing is a bit of an understatement; however, I believe management is solid and being honest in their reasoning and intention to return to faster dividend growth once the spinoff is complete.

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

Of the 28 1-year periods starting in 1993, Ecolab's annual dividend growth has ranged from 2.2% to 20.0%.  The average increase has been 11.7% with a median of 12.0%.

There are 27 rolling 5-year periods during Ecolab's streak and  annualized dividend growth over those periods has ranged from 7.3% to 116.3% with an average of 11.9% and a median of 12.1%.

Of the 19 rolling 10-year periods of Ecolab's streak, annualized dividend growth has ranged from 10.0% to 14.2%.  The average annualized 10-year growth rate has been 11.7% with a median of 11.7%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1989 can be found in the following chart.  

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

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.

Ecolab's 5-year average forward dividend yield is 1.14% which corresponds with a share price of $165 based on the newly raised dividend.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $149 - $183 which suggests shares are currently trading on the upper end of fair value.

Analysts expect Ecolab to have earnings of $5.86 for FY 2019 and $6.54 for FY 2020.  The current price of $185.50 has shares valued at 31.7x and 28.4x forecasts, respectively.  That looks pretty expensive although the 5-year average P/E is 30.9 so it's not out of the realm of historic valuations.  Using the EV/EBITDA shares look expense at 18.5x.

The return from an investment is comprised of 3 parts: growth in earnings + dividend yield + changes to valuation.  Before accounting for valuation changes, Ecolab could potentially produce 14.2% annualized returns; although the question right now is whether valuation changes are going to be a head or tail wind on future returns.  

Wrap Up

This raise increased my forward dividends by $0.40 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my Rollover IRA's current yield of 2.16% this raise is like I invested an extra $18 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.

My FI Portfolio's forward-12 month dividends are $7,798.50.  Including my FolioFirst portfolio's forward dividends of $101.17 brings my total taxable accounts dividends to $7,8899.67.  My Roth IRA's forward 12-month dividends are $642.62.  My Rollover IRA's forward dividends increased to $2,346.10.  Across all accounts I can expect to receive $10,888.39 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.  Ecolab's 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 Ecolab?  How has dividend growth for you holdings fared in 2019?

Please share your thoughts below.