101 Little Happy Moments

[Kerim]

I currently own 19 different individual stocks in my dividend growth portfolio. 18 of them pay dividends quarterly, one of them monthly. That’s 84 dividend payouts each year. 17 of them can be counted on to raise the dividend each year. So 101 times each year, I get either a dividend payout or a dividend increase. Each of these 101 events gives me a very real, if small, moment of excitement and happiness. I especially love updating the spreadsheet that I use to track the portfolio. Although each event is in itself small, they do add up, and each of them increases the base from which future payouts will flow. While not life-changing, these moments do help to keep me focused on the long-term goals of the portfolio.

[TomK]

I feel much the same way. Every dividend payment (which I reinvest) is an affirmation that I am on the right road. It is a long road, to be sure -- I am nowhere close to replacing my income yet, but the dividends help me to be patient.

[Kerim]

“The right road” is right – it is a toll road, but at every tollbooth they throw money at you instead of the other way around.

It is funny you would mention patience. I often find myself feeling a little impatient for the next dividend “moment.” As I mentioned, with my current holdings, I get 101 of them a year, which should work out to one event less than every four days. Of course it doesn’t really work like that. Some popular days you get several events all at once, then weeks go by with no action at all.

[Kerim]

So after 2 or 3 weeks with no "happy moments" at all, I logged into my account today to find a whole pile of little gifts!

Today's haul (as a result of reinvested dividends):

INTC -- 7.74 brand new shares
COP -- 2.49 brand new shares
PSX -- 0.23 brand new shares
AFL -- 0.64 brand new shares
F -- 1.27 brand new shares

And with those additions, my annual income from dividends increases by about $13.00! (Like I said, they are "little" moments, but I love watching them add up!)

[Kerim]

So I checked my account today and found a handful of new dividends that hit my account since early June. Here’s the haul:

PFE – 1.847 brand new shares
JNJ – 2.091 brand new shares
WAG – 0.556 brand new shares
ARCP – 1.024 brand new shares
MCD – 0.790 brand new shares

Those new shares together add about $349.00 to my net worth and add a little more than $11.00 to my annual dividend income! All while I just sit by and watch. Love it.

[TomK]

Yep, I got my MCD and JNJ recently too.

[Kerim]

Perhaps the best of all of the "little happy moments" is when one of your dividend growth stocks delivers its annual dividend raise. In one stroke, it adds more money to your annual income and validates the inclusion of that stock in your DG portfolio.

Today, Walgreens (WAG) announced it is raising its quarterly dividend from 27.5 cents to 31.5 cents. The headlines accurately described this as a 14.5 percent increase in the quarterly dividend -- not too bad. The way I track it, however, WAG paid out an even $1.00 in dividends in 2012, and with this raise, will pay out $1.18 in 2013. By my math, that is an even healthier 18.0 percent increase year over year.

This makes 2013 WAG's 38th consecutive year of increasing dividends. While 18 percent is actually lower than its 5-year average dividend growth rate, which is comfortably north of 20 percent, I'm not at all concerned. WAG's earnings projections are solid and the payout ratio is still well under 50 percent.

Go WAG!

[Lost Fish]

Explain to me your focus on rate of dividend increase. I have always been focused more on dividend yield percentage, yknow, as a return on asset measure, but I feel like you're scratching at something maybe I should pay attention to.

[Kerim]

(07-10-2013, 09:04 PM)Lost Fish Wrote: Explain to me your focus on rate of dividend increase. I have always been focused more on dividend yield percentage, yknow, as a return on asset measure, but I feel like you're scratching at something maybe I should pay attention to.

Hey Lost Fish! Check out this post about dividend growth rate versus dividend yield. The yield itself is of course an important measure, but I also want my income stream from these stocks to grow over time, preferably at a rate that well outpaces inflation. If you look at a stock like T, you might be excited to buy its current yield of over 5 percent at recent prices. And that is fine and well. But T pays out a relatively high percentage of its earnings to give you that 5 percent, and there is not a lot of "headroom" in those earnings to grow the dividend. In each of the last four or five years, the dividend has grown by less than 3 percent each year ($1.64 in 2009, $1.68 in 2010, $1.72 in 2011, $1.76 in 2012, and on track for $1.80 in 2013). So the yield itself is solid, but the growth rate of the dividend is anemic.

Compare this to a stock like WAG. WAG has a low payout ratio, growing earnings, and they have been growing the dividend like gangbusters in recent years -- over 20 percent a year, except for 2013, which is *only* seeing an 18 percent raise ($0.50 in 2009, $0.625 in 2010, $0.80 in 2011, $1.00 in 2012, and on track for $1.18 in 2013). If you buy WAG today, your starting yield is around 2.6 percent, much lower than T. But given the relative growth rates of the dividends, if you are planning to hold for a long time, you can expect the income from WAG to catch and overtake the income from T at some point.

Whether that point is sooner or later depends on lots of factors, and most of those factors are based on guesses about the future. So who really knows. Perhaps you prefer the bird in the hand of a high initial yield like T, or perhaps you want "two in the bush" with a stock like WAG. But one important reason to prefer the latter is that the share price over time tends to follow the earnings growth and dividend growth rate. So you can hope for better capital gains holding WAG over the years as its dividend grows more quickly. Because my crystal ball is still broken, I own both T and WAG. T for the current income and WAG for its potential. I am much more excited / optimistic about WAG, though, and I take today's very healthy dividend raise as vindication of that excitement.

Of course, the holy grail for DG investors is finding a stock with a healthy current yield that also has a strong dividend growth rate. The two stocks on my watch list that meet that test are PM and LMT. At today's prices, I think PM is the better value of the two and the more conservative play. I bought some more PM on a recent dip.

[TomK]

The dividend raises are my favorite too -- especially when they are good ones like WAG's! Did you see that COP just announced a raise? Not a very big one, but at least for the moment they've settled the question of whether they are going to keep their streak alive.

[Kerim]

Found my recent AT&T (T) dividend in my account the other day.

2.7 brand new shares as a result of reinvesting. Added about $98.50 to my net worth, and an additional $4.80 to my annual income!

[Horace Cugle]

Got mine too. T always gets trashed because the dividend growth is low but I've owned it 3 years and I'm keeping it.