Dividend Increase | Ross Stores $ROST #Dividend

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 1st the Board of Directors at Ross Stores (ROST) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.285 to $0.31 which is a solid 8.8% raise.  Ross Stores was previously a Dividend Aristocrat; however, they were forced to cut their dividend during the worst of the COVID lockdowns during 2020 to preserve cash.  The dividend was then restated in March 2021.  Shares currently yield 1.38% based on the new annualized payout.

The new dividend will be payable March 31st to shareholders of record as of March 15th.

Since I own 61.131 shares of Ross Stores in my FI Portfolio, this raise increased my forward 12-month dividends by $6.11.  This is the 6th raise I've received from Ross Stores since initiating a position in 2015 with total organic dividend growth coming in at 164%.  Of course there is that pesky dividend cut during 2020.

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

Prior to 2020 Ross Stores had amassed an impressive dividend growth streak that reached 26 years with every years raise greater than 10% with median increase of nearly 25%.

Since 1994 Ross Stores has increased dividends in all but 1 year, the aforementioned 2020, with year over year dividend growth ranging from -72.1% to 300.0%.  The average increase over that time is 37.6% with a median of 24.0%.

There's been 24 rolling 5-year periods with annualized dividend growth ranging from -9.5% to 57.5% with an average of 28.4% and a median of 27.0%.

Over that same timeframe there's been 19 rolling 10-year periods with annualized dividend growth ranging from 5.9% to 41.6% with an average of 27.6% and median of 26.7%.

Ross' dividend growth has been so stellar that even though they made just one payment in 2020 that still represented a 5.9% annualized growth rate from the annual payment made in 2010.

The 1-, 3-, 5-, and 10-year rolling dividend growth rates for Ross Stores 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 0.85% which corresponds to a share price of $146 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 $132 - $161 and suggests that shares are trading below the lower end of the fair value range.

Going back to before the dividend cut in 2020 the 5-year average was 0.95% with a fair value range based on the newly increased dividend between $118 and $144.

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 Ross Stores can maintain 9.0% annual dividend growth shares are worth around $135 per share.

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

At an 8.0% estimated dividend growth rate Ross' shares are worth around $67 per share.  

Wrap Up

This raise increased my forward dividends by $6.11 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 2.39% this raise is like I invested an extra $256 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.

This is the 16th dividend increase I've received from the companies in my FI Portfolio increasing by forward 12-month dividends by $146.13 combined.

My FI Portfolio's forward-12 month dividends are $9,824.21  Including my FolioFirst portfolio's forward dividends of $182.97 brings my total taxable accounts dividends to $10,007.18.  My Roth IRA's forward 12-month dividends are $9366.07.  My Rollover IRA's forward dividends are $4,235.24.  Across all accounts I can expect to receive $15,178.49 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?  Given the extenuating circumstances surrounding Ross' dividend cut I decided to hold my shares.  Do you immediately sell shares if there's a dividend cut or do you give companies some wiggle room?

Please share your thoughts below.