Dividend Reinstatement | Ross Stores (ROST)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Ross Stores 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 March 3rd the Board of Directors at Ross Stores (ROST) reinstated their dividend payment to $0.285.  That's a very welcome sight for a company that was hurt severely by the COVID induced lockdowns.  Ross Stores is a former Dividend Champion after amassing a 26 year dividend growth streak, but COVID introduced an entirely new set of risks and the dividend was suspended after making just 1 payment in 2020.  For now though their streak has to start over and is in the beginning of year 1.  Shares currently yield 0.93% based on the new annualized payout.

The new dividend will be payable March 31st to shareholders of record as of March 16th.

Since I own 61.131 shares of Ross in my FI Portfolio, this raise increased my forward 12-month dividends by $69.69.  Since purchasing shares in 2015 I've received 5 dividend raises with total organic dividend growth coming in at 143%.

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

Ross Stores had a tremendous dividend growth run from 1994 through 2019.  That's an impressive 26 year span and even more impressive was the pace of dividend growth.  

During their streak Ross Stores had year over year dividend growth that ranged from 11.7% to 118.9% with an average of 32.6% and a median of 24.7%.

There were 21 rolling 5-year periods during their streak with annualized dividend growth ranging from 18.0% to 57.5% with an average of 31.5% and a median of 28.0%.

Likewise there were 16 rolling 10-year periods with annualized dividend growth ranging from 22.5% to 41.6% with an average of 30.3% and a median of 28.1%.

The pretty impressive thing about Ross' dividend growth is that despite paying just one dividend payment in 2020 they still showed a positive 8 year dividend growth rate.  That's pretty dang remarkable in my opinion.

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.

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

Ross' 5-year average forward dividend yield is 1.01% which corresponds to a share price of $113 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 $103 - $125 and suggests that Ross is trading on the high end of fair value.

Wrap Up

This raise increased my forward dividends by $69.69 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.37% this raise is like I invested an extra $2,93545 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 the companies in my FI Portfolio increasing my forward-12 month dividends by $207.89.

My FI Portfolio's forward-12 month dividends are $7,995.43  Including my FolioFirst portfolio's forward dividends of $172.77 brings my total taxable accounts dividends to $8,168.20.  My Roth IRA's forward 12-month dividends are $708.00.  My Rollover IRA's forward dividends are $3,628.55.  Across all accounts I can expect to receive $12,504.75 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 or any other company that was forced to cut its dividend due to COVID?  If so did you sell out of the position or continue holding?

Please share your thoughts below.