Expected Dividend Increases for July 2019

With NBA free agency set to start in just a few more days, this offseason is sure to be one that will shape the landscape of the NBA for at least several years. If things play out right, the Milwaukee Bucks could again return to their glory days in the early to mid 1970s, which is beyond exciting to me. With that said, June is nearly over and with it, the year is incredibly half over. It's time for another post detailing the dividend increases I received in June, while we also look ahead to the raises I'm expecting in July.

June Dividend Increases: 

Dividend Increase #1: Realty Income (O)

As I expected in the previous dividend increase post, Realty Income raised its monthly dividend 0.2%, from $0.2260/share to $0.2265/share. This increased my annual forward dividends by $0.024 across my 4 shares.

Dividend Increase #2: WP Carey (WPC)

WP Carey came in with another quarter of somewhat disappointing dividend growth, announcing a 0.2% increase in its quarterly dividend, from $1.032/share to $1.034/share. This increased my annual forward dividends by $0.024 across my 3 shares.

Wild Card: Philip Morris International (PM)

Unless Philip Morris announces a last minute dividend increase in June, the company didn't increase its dividend in June like it did last year. I would assume the increase last June was an anomaly as the company felt compelled to keep up with its peer, Altria and the two dividend increases it announced last year. At any rate, we should definitely be receiving a dividend increase from Philip Morris in September.

Expected July Dividend Increases:

Expected Dividend Increase #1: JM Smucker (SJM)

While JM Smucker has a very strong 5 year DGR of 8% and a most recent increase of 9%, I wouldn't be surprised to see a bit of a deceleration from prior years, with a 6-7% increase being the most likely outcome from my perspective. This would translate into an increase in the quarterly dividend from $0.85/share to $0.90-$0.91/share. Across my two shares, my annual forward dividend income would increase $0.40-$0.48.

Expected Dividend Increase #2: EQM Midstream Partners

I'm expecting EQM Midstream Partners to continue with the status quo of $0.015 quarterly dividend increases, which is fine with me considering my yield on cost is approaching 9%. A 1.3% increase in its quarterly dividend, from $1.145 to $1.16 is an outcome I am quite confident in. Across my 4 shares, this would increase my annual forward dividends by $0.24.

Expected Dividend Increase #3: Enterprise Products Partners (EPD)

Enterprise is another name that I'm quite confident will be predictable. A 0.6% increase in the company's quarterly dividend, from $0.4375 to $0.44 is yet another outcome I am confident will materialize. If this does occur, my annual forward dividends would increase $0.09 across my 9 shares.

Wild Card Increase: British Petroleum (BP) 

It was around this same time last year, BP announced a rare dividend increase on the last day of July. The real question is if it was a one time event that won't happen for another 4 or 5 years, or if it will be a repeatable event. While I believe this is like the flip of a coin, I'll assume a 2.4% increase in the quarterly dividend from $0.615/share to $0.63/share. Across my 4 shares, this would increase my annual forward dividends by $0.24.

Summary: 

Overall, I received only $0.048 in dividend increases for the month of June, which would take $1.20 in fresh capital to replicate at a 4% yield. While June was a pretty disappointing month in terms of dividend increases, my upcoming dividend income post for the month will more than make up for it. Spoiler alert: I set a new personal best for dividends received in a month! In regards to July, my annual forward dividends could increase $0.73 or upwards of $1.05, which would take investments of $18.25 to $26.25 to replicate, respectively, assuming a 4% dividend yield.

Discussion: 

How was your June in terms of dividend increases? If it was a bit disappointing like mine, did you at least have a record dividend income month as a consolation prize? As always, thanks for reading and I look forward to replying to your comments.

My First Major Dividend Growth Investing Revelation

Since I began dividend growth investing in September 2017, I've primarily been an investor that focuses more on yield than on dividend growth. While I own plenty of companies with high dividend growth, such as Home Depot (HD), Lowe's (LOW), and Williams Sonoma (WSM), it's no secret that my portfolio is chalk full of companies with high dividend yields and low single-digit dividend growth or maybe even no growth, such as AT&T (T) and Royal Dutch Shell (RDS.B). Recently, I've come to see the value in low yield, high growth companies, such as Visa (V), TJX Companies (TJX), and Lockheed Martin (LMT).


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As I've grown older and more experienced as an investor, and as my dividend income has continued to grow, I've become less fixated on yield and more focused on the dividend growth aspect of investing. After all, it's the dividend growth of a portfolio that helps an investor crush inflation and build long term wealth that can be generational.

While I believe it's important to own high yielding companies like AT&T, I'd argue it's equally as important to own low yielding, high growth dividend companies.

The case for an investment in companies like AT&T is obvious. The higher amount of current income one receives, the more they can reinvest, which acts as one of the three growth mechanisms for dividend income, with the other two being dividend increases and fresh capital contributions.

At the time of writing, AT&T offers a 6.31% dividend yield and ~2% dividend increases each year, which will probably accelerate to 3% a year once AT&T has completed its deleveraging plan. For the sake of calculation purposes, we'll assume that 2% dividend increases continue to be the norm. According to BuyUpside's dividend payback period calculator, it would take 14 years for one to recover their initial investment in dividends from AT&T, which they could also reinvest in other attractive buying opportunities along the way. While investors with a 30, 40, or 50+ year time span are better off with a low yielding company, high growth company like Visa, it's quite easy to see why high yielders with reasonably sustainable dividends like that of AT&T received my preference for the past two years, and why companies like AT&T are crucial to a dividend investor.

At the time of writing, Visa offers a 0.59% dividend yield and the potential for 16% dividend increases each year for the next couple decades due to its lucrative, high growth business, and low payout ratio. If we assume a very conservative 12% CAGR for earnings over the next 20 years, Visa could increase its dividend each year by 16% and its payout ratio would double from 19% to a still manageable ~38%. Before we plug in how long it would take to recover an investment in Visa in dividends, I'd like you to estimate how long it would take for this to occur.

If you properly considered the power of compounding dividends, you would have replied it would take 22 years to recover your investment in Visa.

When we consider that Visa's starting yield is less than a tenth of what AT&T's is, this is absolutely mind boggling and I never gave enough merit to companies like Visa until I was configuring a model dividend growth with a 3.3% yield, a 9% 5 year DGR, and a 8% 10 year DGR. I found that companies like Visa were like adding gasoline to the dividend growth fire, so to speak.

Even if we assume AT&T manages to achieve a long-term dividend growth rate of 3%, the yield on cost of AT&T after 25 years barely doubles from the current 6.31% to 12.83%, using the yield on cost calculator.

If we take Visa and plug in an even more conservative dividend growth rate of 14% a year over the next 25 years, we arrive at a monstrous yield on cost of 13.70% from the current 0.59%.

While I always understood the power of compounding dividends, I never truly understood it until I stopped and took a few moments to analyze what a comparison like the one above looks like in action.

Admittedly, there may be flaws in the above long-term projections (AT&T's long-term dividend growth could be 3-4%, and Visa's could be a bit lower than the 14% over the next 25 years), but I think the illustrative nature of this example could help other investors to let go of their shortsightedness and fixation on yield like I recently did.

I've always been a long-term thinker, but until I did this experiment, I would typically only think about 5 years from now or 10 years from now. Sure, it may be difficult to predict what the future holds two decades from now for AT&T and Visa, but it's quite enlightening to see that each company holds its own purpose in a DGI portfolio.

It is my hope that the above demonstration will prevent others from chasing yield too often like I did in the past. It's understandable for one to question "how can I increase my dividend income faster" when one is just starting out and they receive their first dividend check for a few dollars like the $1.35 I received from Genuine Parts Company in October 2017.

But I believe as one continues to invest and their dividend income grows, they feel less of a need to chase yield and they start to include high growth dividend payers in the mix. This is my perspective as a relatively new investor, and I'm thrilled to share with readers how my overall thoughts on DGI change as I become a more experienced investor.

Discussion:

Did you have a tendency to chase higher yields when you first began dividend investing? Or were you already well aware of the power of rapidly growing dividends? As always, thanks for reading and I look forward to replying to your comments.

May 2019 Dividend Income

It's incredible to think that summer is unofficially here (we had our first 90 degree day of the year in Wisconsin) and that the MLB All-Star Game is just around the corner. With that said, it's time for us to discuss how much May provided for us in terms of dividend income.

Analysis

Overall, I collected $44.04 in dividends during the month of May. Of this, $43.70 came from 12 companies in my Robinhood portfolio. The remaining $0.34 came from 15 companies in my M1 Finance portfolio. The $44.04 in dividends represents a 2.1% quarter over quarter growth compared to February 2019, and a 30.1% YOY growth compared to May 2018.

There were a number of changes from February 2019 to May 2019 including the following that accounted for the $0.95 increase in dividend income:

Williams Sonoma's (WSM) dividend recent dividend increase accounted for an additional $0.30 in dividends per quarter for me, which showed up in May.

I also received dividends on an additional 5 shares of Energy Transfer (ET), which increased my dividend income by $1.52 from February to May.

I also received dividends on an additional share of AbbVie (ABBV), which was a result of my recent sale of Omega Healthcare Investors (OHI) shares to close my position. This increased my dividend income by $1.07.

Speaking of OHI, the two sales of OHI reduced my dividend income by $5.94 and were used to buy a share in ABBV, Dominion Energy (D), and Magellan Midstream Partners (MMP).

The addition of MMP shares to my portfolio increased dividend income by $3.02.

I also benefited from both a dividend increase from Tanger Factory Outlet Centers (SKT) and an additional share. This increased my dividend income by $0.41.

A dividend increase from EQM Midstream Partners (EQM) also raised my dividend income by $0.06.

An additional share of Enterprise Products Partners (EPD) and a dividend increase raised my income by $0.46.

Conclusion:

While this month wasn't spectacular growth compared to February, it was still growth and I consider that decent progress for where I'm at in life. I'll soon be graduating college and I'll have significantly more capital to invest next year after I have a car paid for in cash and a small emergency fund established.

Discussion:

How was your month? Did you have any new dividend payers? Close any positions like I did? As always, thanks for reading and I look forward to replying to your comments.

Expected Dividend Increases for June 2019

The Milwaukee Bucks had a disappointing end to their otherwise strong season after taking a 2-0 lead in the Eastern Conference Finals against the Raptors. Despite the heartbreaking ending, I don't believe this will be the last we see of Giannis and Co in the ECFs for quite a few years. Aside from that, yet another month is nearly over and that means it's time to examine the dividend increases we've received for May (so far) and look ahead to June.

May Dividend Increases:

Dividend Increase #1: Lowe's Companies (LOW)

As I predicted LOW would, they increased their quarterly dividend by 14.6% from $0.48/share to $0.55. This increased my annual forward dividends by $0.56 across my 2 shares.

Dividend Increase #2: Leggett & Platt Incorporated (LEG)

LEG did exactly as I predicted they would, increasing their quarterly dividend by 5.3% from $0.38/share to $0.40. This resulted in a $0.40 increase to my annual forward dividend income across my 5 shares.

Expected Dividend Increases:

Expected Dividend Increase #1: Realty Income (O)

I am expecting O to continue its trend of increasing its dividend by roughly 0.3% in the last month of each quarter, in addition to the 3-4% increases in January. Therefore, I'd expect a raise in the monthly dividend from $0.2260/share to $0.2265. That would increase my annual forward dividends by $0.024 across my 4 shares.

Expected Dividend Increase #2: WP Carey (WPC)

I am also expecting WPC to remain predictable with the $0.005/share quarterly increases. An increase in the quarterly dividend from $1.032/share to $1.035 seems to be a likely occurrence, which would increase my annual forward dividend income by $0.036 across my 3 shares.

Expected Dividend Increase #3: Philip Morris International (PM)

This one is a complete wildcard. Although PM increased its dividend last June, it has historically raised its dividend in September. Given the reputation PM has for increasing its dividend around mid-single digits, I'd assume a dividend raise from the current quarterly dividend of $1.14/share to $1.20 seems like a reasonable prediction. This would increase my annual forward dividends by $0.96 across my 4 shares.

Conclusion:

While the month of May didn't come close to April in terms of dividend increases, I still received two strong increases that were exactly what I expected they would be. These two raises increased my annual forward dividends by $0.96, which is equivalent to an investment of $24.00 at a 4% dividend yield.

Overall, June could result in a $0.06 increase to my annual forward dividends or a possible $1.02 increase in my dividends if PM announces a second consecutive dividend increase in June. Overall, the $1.02 in expected dividend increases for the month of June would take $25.50 of fresh capital invested at a 4% dividend yield. The trifecta of dividend increases, reinvestment, and occasional fresh capital continues to work its magic, and I couldn't be more pleased.