Dividend Increase | Ross Stores (ROST)
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| Getting a pay raise while sitting on the couch? Sign me up! Thanks Ross Stores for the 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 March 3rd the Board of Directors at Ross Stores (ROST) approved an increase in the quarterly dividend payment. The dividend was increased from $0.255 to $0.285. That works out to a huge 11.8% increase. Ross Stores is a Dividend Champion with 27 consecutive years of dividend growth. Shares currently yield 1.90% based on the new annualized payout.
The new dividend will be payable March 31st to shareholders of record as of March 17th.
Since I own 61.131 shares of Ross Stores in my FI Portfolio, this raise increased my forward 12-month dividends by $7.34. This is the 5th dividend increase I've received from Ross since initiating a position in May 2015. The total organic dividend growth over that time comes to 142.6%.
A full screen version of this chart can be found here.
What's pretty amazing is that this 11.8% increase was the second lowest year over year increase that Ross Stores has given during their 27 year streak of dividend growth. The 1-year dividend growth rate has ranged from 11.7% to 118.9% with an average of 31.8% and a median of 24.0%.
Of the 22 rolling 5-year periods, annualized dividend growth has ranged from 18.0% to 57.5% with an average of 30.9% and a median of 27.6%.
The 17 rolling 10-year periods are equally impressive. The 10-year annualized dividend growth rates have ranged from 21.7% to 41.6% with an average of 29.8% and a median of 27.8%.
The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1994 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.
No that huge spike on the right of the chart is not an error. Trust me, I triple checked. The massive sell-off over the last month or so has seen Ross' share price decline by just over 50%. Combine that with a solid 11.8% dividend increase and you get a huge spike in the forward dividend yield.
Ross' 5-year average forward dividend yield is 0.96% which corresponds to a share price of $119 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 $108 - $133 and suggests that Ross is trading well below it's normal range.
Obviously things are looking pretty bleak in the near term for just about every company out there; however, successful investing especially during massive downturns requires you to be able to look past the ugliness of the near term to the future that better represents the true value of the business. I have no idea what is going to happen, but at least based on dividend yield theory Ross Stores is worth nearly twice as much as the current price offered in the markets.
Wrap Up
This raise increased my forward dividends by $7.34 with me doing nothing. That's right, absolutely nothing to contribute to their operations. Based on my FI Portfolio's current yield of 4.03% this raise is like I invested an extra $182 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 17 raises from 17 of the 54 companies in my FI Portfolio increasing my forward-12 month dividends by $140.01.
My FI Portfolio's forward-12 month dividends are $8,103.58. Including my FolioFirst portfolio's forward dividends of $101.67 brings my total taxable accounts dividends to $8,205.25. My Roth IRA's forward 12-month dividends are $665.40. My Rollover IRA's forward dividends are $2,635.07. Across all accounts I can expect to receive $11505.72 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. Ross Stores' 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 Ross Stores? How do you think retailers will weather the current social distancing efforts to contain Covid19 spread?
Please share your thoughts below.
I'm honestly shocked that they increased their dividend as much as they did. I wonder how much of it was timing, since it was announced on March 3rd before things became really bad in the market. Regardless, that's not your problem haha Enjoy the extra $7 in forward dividend and enjoy that high DRIP!
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