Dividend Increase | Stryker Corporation (SYK)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Stryker 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 9th the Board of Directors at Stryker Corporation (SYK) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.63 to $0.695 which is an excellent 10.3% increase.  Stryker is a Dividend Champion with 28 consecutive years of dividend growth.  Shares currently yield 1.07% based on the new annualized payout.

The new dividend will be payable January 31st to shareholders of record as of December 31st.

Since I own 24.679 shares of Stryker in my Rollover IRA, this raise increased my forward 12-month dividends by $6.42.  This is just the 3rd raise I've received from Stryker since initiating a position in 2019.  

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

Stryker's dividend growth has been very impressive in its 28 year history.  Dating back to 1994 year over year dividend growth has ranged from 8.3% to 117.4% with an average of 25.4% and a median of 16.7%.

There's been 23 rolling 5-year periods over that time with annualized dividend growth ranging from 10.6% to 46.1% with an average of 26.0% and a median of 26.3%.

There's also been 18 rolling 10-year periods with annualized dividend growth ranging from 13.4% to 37.4% with an average of 27.1% and a median of 29.8%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates from Stryker 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 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.

Stryker's 3-year average forward dividend yield is 1.08% which corresponds to a share price of $257 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 $234 - $287 and suggests that shares are trading around fair value at a price of $260.

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 Stryker can maintain 9.0% annual dividend growth shares are worth around $303 per share.

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

However, reducing the expected long term dividend growth rate to 8% and keeping the 10% discount rate lowers the value of Stryker to just $150. 

Wrap Up

This raise increased my forward dividends by $6.42 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 1.87% this raise is like I invested an extra $344 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 27 raises from the companies in my Rollover IRA increasing my forward-12 month dividends by $313.51.

My FI Portfolio's forward-12 month dividends are $9,228.19  Including my FolioFirst portfolio's forward dividends of $178.19 brings my total taxable accounts dividends to $9,406.38.  My Roth IRA's forward 12-month dividends are $893.25.  My Rollover IRA's forward dividends are $4,064.61.  Across all accounts I can expect to receive $14,364.24 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.  Stryker Corporation'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 Stryker?  What about other companies in the medtech space?

Please share your thoughts below.