Dividend Increase - Rollover IRA | Home Depot (HD)


Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Home Depot 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 23rd the Board of Directors at Home Depot (HD) approved an increase in the quarterly dividend payment from $1.50 up to $1.65.  That's an excellent 10.0% raise.  Home Depot is a Dividend Contender with 11 consecutive years of dividend growth.  Shares currently yield 2.52% based on the new annualized payout.
 

The new dividend will be payable March 25th to shareholders of record as of March 11th.

Since I own 11.523 shares of Home Depot in my Rollover IRA, this raise increased my forward 12-month dividends by $6.91.  This is the 2nd dividend increase I've received from Home Depot after initiating a position in 2019.  Total organic dividend growth over that time is an excellent 21%.



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

Home Depot's dividend growth streak is solid at 11 years although there was that pause in dividend growth in 2008 and 2009.  Considering they are largely tied to the housing market I think that was a reasonable decision.  Home Depot has not cut their dividend though since initiating in 1987 which puts their streak of paying the same or higher payout at a hefty 35 years.

During Home Depot's 11-year streak, year over year dividend growth has ranged from 5.0% to 34.5% with an average of 18.4% and a median of 16.3%.

Dating back to 1987 there's been 30 rolling 5-year periods with Home Depot's annualized dividend growth rates ranging between 5.2% to 52.9% with an average of 26.0% and a median of 25.1%.

Over that same time there's been 25 rolling 10-year periods with annualized dividend growth ranging from 14.7% to 40.0% with an average of 24.6% and a median of 23.0%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1987 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.

Home Depot's 5-year average forward dividend yield is 2.29% which corresponds to a share price of $288 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 $262 - $320 and suggests that Home Depot is trading on the low end of the fair value range.
  




Wrap Up

This raise increased my forward dividends by $6.91 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my Rollover IRA's current yield of 2.06% this raise is like I invested an extra $335 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 5 raises from the companies in my Rollover IRA increasing my forward-12 month dividends by $19.23.

My FI Portfolio's forward-12 month dividends are $7,886.75  Including my FolioFirst portfolio's forward dividends of $114.36 brings my total taxable accounts dividends to $8,001.11.  My Roth IRA's forward 12-month dividends are $706.80.  My Rollover IRA's forward dividends are $3,578.86.  Across all accounts I can expect to receive $12,286.77 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.  Home Depot'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 Home Depot?  How much longer do you think they can maintain their torrid pace of dividend growth?

Please share your thoughts below.

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