Dividend Increase | Ecolab (ECL)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Ecolab for another 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 2nd the Board of Directors at Ecolab (ECL) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.48 to $0.51 which is a solid 6.3% increase.  Ecolab is a Dividend Champion with 29 consecutive years of dividend growth.  Shares currently yield 0.91% based on the new annualized payout.

The new dividend will be payable January 18th to shareholders of record as of December 14th.

Since I own 22.774 shares of Ecolab in my Rollover IRA, this raise increased my forward 12-month dividends by $2.73.  This is the 3rd raise that I've received from Ecolab since initiating a position in 2019.  Total organic dividend growth over that time is just 10.9%.

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

Ecolab's dividend growth streak got off to an inauspicious start with a dividend initiated in 1989, maintained in 1990, increased in 1991,  and then maintained in 1992.  However, starting in 1993 annual raises have come every single year.

During Ecolab's streak there's been 29 year over year periods with annual dividend growth ranging from 2.1% to 20.0% with an average of 11.2% and a median of 11.3%.

There's been 26 rolling 5-year periods over that time with annualized dividend growth ranging from 6.5% to 16.3% with an average of 11.5% and a median of 12.0%.

There's also been 21 rolling 10-year periods during Ecolab's streak with annualized dividend growth ranging from 9.8% to 14.2% with an average of 11.6% and a median of 11.5%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates from Ecolab 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 3 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 3-year average forward dividend yield is 0.96% which corresponds to a share price of $213 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 3-year moving average yield +/- 10%.  That gives a fair value range of $194 - $237 and suggests that shares are trading within fair value at the current price around $224.

Another quick and dirty valuation method is the Gordon Growth or Dividend Discount model.  This valuation method is based solely off the expected future dividends as well as your required return.  Based on a 10% discount rate and assuming Ecolab can maintain 9.0% annual dividend growth shares are worth around $222 per share.

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

Reducing the expected long term dividend growth rate to 8% and keeping the 10% discount rate lowers the value of Ecolab to just $110. 

Wrap Up

This raise increased my forward dividends by $2.73 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 1.91% this raise is like I invested an extra $143 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 25 raises from the companies in my Rollover IRA increasing my forward-12 month dividends by $284.90.

My FI Portfolio's forward-12 month dividends are $9,133.85  Including my FolioFirst portfolio's forward dividends of $178.19 brings my total taxable accounts dividends to $9,312.04.  My Roth IRA's forward 12-month dividends are $892.26.  My Rollover IRA's forward dividends are $4,029.16.  Across all accounts I can expect to receive $14,233.46 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?  Do you think they can return to low to mid teen annual dividend growth or is the mid single digit range more likely?

Please share your thoughts below.