Dividend Increase | L3Harris Technologies (LHX)

Getting a pay raise while sitting on the couch?  Sign me up!  Thanks LHX 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 February 28th the Board of Directors at L3Harris Technologies approved an increase in the quarterly dividend payment.  The dividend was increased from $0.75 to $0.85.  That works out to a huge 13.3% increase.  L3Harris is a Dividend Contender with 18 consecutive years of dividend growth.  Shares currently yield 1.72% based on the new annualized payout.

The new dividend will be payable March 27th to shareholders of record as of March 13th.  

Since I own 62.953 shares of L3Harris in my FI Portfolio, this raise increased my forward 12-month dividends by $25.18.  This is the 8th dividend increase I've received from L3Harris since initiating a position in August 2012.  The total organic dividend growth over that time comes to 129.7%.

This is also their second increase compared to the the year ago period.  In total the dividend has grown 24.1% year over year.

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

The only blemish on L3Harris' record is the dividend cut back in 1999 followed by 11 quarters of a stagnant dividend.  Since then, L3Harris has been raising their dividend at an incredible pace.

Since the 18 year streak started, L3Harris 1-year dividend growth has ranged from 6.2% to 38.5% with an average of 20.9% and a median of 18.5%.

Of the 15 rolling 5-year periods during the streak, annualized dividend growth has ranged from 9.5% to 32.0% with an average of 20.1% and a median of 17.7%.


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.

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.

L3Harris' 5-year average forward dividend yield is 1.93% which corresponds to a share price of $176 based on the new annualized payout.  

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 $160 - $196 and suggests that L3Harris is trading on the high end of fair value.

L3Harris is trading at 17.0x current year estimates and 15.0x next years estimates.  On an EV/EBITDA basis the multiple is higher at 19.6x due to the debt that L3Harris carries on its balance sheet.

The returns that an investment can provide are made up of the dividend yield plus the growth rate plus the annualized return due to changes in valuation.  In L3Harris' case the first two work out to 1.72% and 13.0%, analyst 5 year forward estimate, or 14.7%.  Future returns look pretty solid here if the growth does pan out as forecast and you could possibly see an additional 1-2% per year on a higher multiple.  All in all L3Harris looks pretty solid.


  




Wrap Up

This raise increased my forward dividends by $25.18 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 3.25% this raise is like I invested an extra $775 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.

I've now received 16 raises from 16 of the 54 companies in my FI Portfolio increasing my forward-12 month dividends by $132.67.

My FI Portfolio's forward-12 month dividends are $8,080.17.  Including my FolioFirst portfolio's forward dividends of $101.88 brings my total taxable accounts dividends to $8,182.05.  My Roth IRA's forward 12-month dividends are $663.39.  My Rollover IRA's forward dividends are $2,558.12.  Across all accounts I can expect to receive $11,403.56 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' 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?  How do you feel about a company that has a dividend cut in its history?

Please share your thoughts below.