When talking about dividend increases, this is us talking about dividend investing, at it’s finest! Given another quarter-end had recently passed, I wanted to reflect on what occurred over the last full-year. I do not mean just any old reflection, but I am going to be specifically talking about dividend increases and their impact on my portfolio this year. Tax reform has been rewarding, as companies have been sending portions of the cost savings to their shareholders.
Why dividend increases matter
Why does this matter? Why would dividend increases matter to my investment journey? The next section will describe the importance of dividend increases. In short, the reason is the increase in cost of goods (food, energy, shelter, etc.), over a span of time. This is what you hear, when, “inflation”, is discussed.
Why do dividends increasing in the future matter from companies that we own? When the price of goods are increasing, don’t you want your income to continue to grow, in order to offset or “trump” the inflation? Now, as the community knows, uninterrupted dividend increases are a quality we look for, prior to investing in a company. We don’t solely invest for current income, but we are investing for a larger, future income too! For example, Johnson & Johnson (JNJ) increased their dividend 7.15% back in April. The 7.15% dividend increase outpaces the rate of inflation, which has been stated at 2.3% over the last year. Does this start to make sense now? Buying a dividend income stock, that increases their dividend every year, not only pays you a solid rate or income each year, but they also increase their dividend in a way that outpaces or should outpace the increase in costs/prices or “inflation” (see Our Top 5 Foundation Stocks for great dividend income stocks that have increased their dividend each year for 25+ years!).
Here is the other kicker that I wanted to mention. Most of us are all working for employers and, if we are lucky, receive a raise from our employer or from our clients. However, sometimes the raise doesn’t touch the rate of inflation or sometimes we don’t receive a raise, depending on performance of what we do, how the company or even how our clients are doing. A dividend income stock that increases their dividend, each year, can also take care of that. I have been lucky and blessed to have the ability to invest into dividend income companies, to say the least, and have seen a rampage of dividend increases this year, that far outpaced any raise that I received, that’s for sure.
Dividend Increase Impact Through Nine Months
Now, with all of that being said, what have dividend increases done for my portfolio through the end of the year or December 2018? I’ll list out each dividend increase from the monthly dividend income posts, the rate of increase, each dollar impact and the total. My goal is to show the community, the readers and those that are curious about dividend investing, how wonderful of a plan that it is! They say proof is in the pudding and here, my friends, is proof that the dividend increases impact my portfolio in a massive way. Here are my dividend increase results through the year of 2018:
The dividend increase announcements that these companies have had this year have been nothing more than remarkable. Kinder Morgan (KMI) has had the most intense increase of 60%, adding over $40 to my dividend income portfolio. Further, the unexpected dividend increase announcement from not just Philip Morris (PM), but from John Deere (DE) and Caterpillar (CAT), were well received and tremendously impacted my forward income. Additionally, Norfolk (NSC) has had 2 MASSIVE dividend increase announcements, after being quiet for so long. They sure are making noise. Also – McDonald’s almost 15% raise had me screaming, “I’m lovin’ it”, and I know I am not the only one to feel that way. What occurred in the 4th quarter? Well, Rockwell Automation (ROK) said, “hey, you didn’t like just the 10% dividend increase from the first part of the year? Well, here is another 5.4%!”. That was incredible, ROK coming in with their second increase, as well.
However, everything wasn’t rainbow and butterflies. Emerson (EMR) came in with a 1% dividend increase… AGAIN. They maintained their aristocrat status, but a 1% increase has been difficult to swallow, adding only $2 to my forward income. Now, that small increase was completely offset by a very unexpected dividend increase that I could have picked 100 other companies would have announced, instead. FirstEnergy (FE) announced their first dividend increase in years.
Based on my forward income, at year-end of 2017 ($9,733.93), this $493.31 was a 5.07% add! In order to add the $493.31 to your forward dividend income, based on a 3.50% dividend yield, one would have to invest a whopping $14,095! Please re-read that. I would have to invest OVER $14,000 into the stock market in order to generate that much forward income. What did I have to do, in this case? Not a DAMN thing. Obviously I had to commit the up-front capital, in order to make the investments into high quality dividend income companies, but each dividend increase did not take a decision from me. This should be the point where it all, “clicks”. This is in line with why we think the power of the dividend growth rate is real!
Dividend Increase nine Month Summary
First, I am lucky to make enough money and to save as much as I can, to make investments into dividend growth stocks. However, my goal is to drive home that dividend investing is extremely powerful, to the community. As you noticed above, not every dividend increase is gigantic, in fact, approximately half are below the double digit mark. The huge BUT here, is that each dividend increase, when added together, produces incredible results. Each of those dividend increases above, added up to $493.31 (an increase of $79.64 from September, slightly less than the growth in the 3rd quarter) and it would take over $14,000 investment for that to happen! Does it take saving, investing and patience? Hell yes it does and a “whole lot of it”, in this game. However, with these results, wouldn’t you do it, too?
For 2019 growth – I anticipate three levels of dividend growth, we’ll call it red, yellow and green. The red zone will be $600-$649, yellow zone will be set at $650-$699 and green zone will be set at $700+. The reason for these expectations are based on conservative, moderate and aggressive dividend growth rates of 8%, 8.5% and 9%. This past year, an approximately 9.5% growth occurred, give or take 20 basis points. Therefore, I am very anxious and excited for what 2019 will bring. This growth rate in percentage and dollar is based on my individual, taxable account.
Thank you everyone for coming by to read another dividend investing lesson with the proof in the pudding example above. I love to be full disclosure, especially if it helps beginners, experiences investors or readers who simply want to learn more. Have you been enjoying each and every dividend increase announcement? Are you experiencing the same benefits above? Does this help show the benefits of being a dividend investor? Please comment below and, as always, good luck and happy investing!
That is a huge amount of money coming solely from dividend increases! Just shows that DGI investing really works. I also had a good dividend year after increasing my yearly net dividend income with nearly 800€. I didn’t calculate how much of that came from dividend increases, but I bet it was three digits. Love your content, keep it up. Cheers from Finland!
OV –
I agree and yes, it does work, right? AND WOW, adding over 800 in any given year is astounding. Congrats and pumped to be connected with the people of Finland!!
-Lanny
Amazing – the average increase in your portfolio is pretty big – and you’re doing OK if you’re biggest disappointment is only a 1% increase from one of your holdings! I’ve seen plenty of my stocks in the past reduce or completely cut their dividends 🙂
That’s the big difference between investing in high quality dividend payers, and cheap, out-of-favour stocks!
Cheers, Frankie
Frankie –
I agree on the 1%. I don’t anticipate a large dividend increase year in 2019, due to 2018 being the first year after tax-reform. I expect around 75% of what 2018 was, but I’ll take a surprising bump above that : )
That is the difference Frankie, nailed it on the head. Dividend growth works and adds income/forward income by owning well-run companies!
-Lanny
Dividend increases are two words that I will never get tired of hearing. 🙂 The impact of dividend increases is real and quite large. This is the first year I’ve calculated my dividend increases throughout the year and I’ll make a post towards the end of the month about the impact of my own dividend increases. My number won’t match your impressive number but it is still pretty good. Keep up the great work guys! 🙂
MDD –
The most exciting time periods are the divvy announcements! Still waiting on a few this month, killing me!
I am pumped to read about your growth and the impact of your dividend increases. I am curious on the growth rate you experienced. Thanks MDD and talk soon.
-Lanny
I ended up at about 7.2% in organic increases for the year. By far my best year for dividend increase across the portfolio. I thought your number would be higher than 5%. I remember your mid year update and I thought you were running at about 8%. And just eye balling your increases by company it seems it would be more than 5% overall. Am I missing something? Your calculation makes sense to me. Same thing I do. Regardless, it’s awesome. I love it. It’s like free money.
I was disappointed in EMR too. But I analyzed it and have decided to stay in. I think better increases will be coming in future years.
Happy New Year.
Tom –
Thank you and similar to JC’s comment, I really only discussed taxable dividend increases but inadvertently applied those increases to my entire portfolio, which includes my 401k/IRAs that hold mutual funds, etc., which I did not include any of their growth rates in this article. Does that help/make more sense? My dividend growth rate on my taxable account was actually 9.60% for 2018, which is just insane.
And yes… something tells me that us investors will see the cycle of EMR’s dividend growth and after a few periods of 1% increases, they will return back to 4-6%+ increases soon enough. Cheers to 2019!
-Lanny
Ah the power of dividend growth. You got to love it. For our taxable account we had 59 increases during the year which boosted our forward dividends by $476.59. I’m very curious to see how 2019 plays out and towards the end of the month they should start rolling in. Out of curiosity why the expectation for higher dividend growth for 2019 between 8-9% if it came in at 5% for 2018? Did you end up adding more companies in 2018 that are faster growers? Looking forward to your updates for 2019.
JC –
You know it. WOW… 59 increases?! Are you kdding me?! Looks like we were pretty much even on the impact, impressive. Now, the 5% add was just the total addition it had to my overall forward dividend income and is not the dividend growth rate for my individual taxable account alone. I’ll make note of that in the article now, to not confuse anyone. Therefore, the income added was applied to my entire portfolio, including retirement accounts, which I did not factor their dividend growth in, i.e. mutual funds, etc. Does that make sense? My taxable portfolio’s dividend growth rate stood at 9.60% for 2018, actually. Make sense? Let me know!
-Lanny
Lanny,
Ah! I knew something had to be up. Thanks for clearing that up because things just didn’t look quite right.
That’s awesome dude – love that growth! I wonder if 2018 was a dividend growth anomaly due to the tax break or if will continue into 2019.
Amazing!
One question for novices like me: How do yo know the dividend increases?
Wow those increases equate to the same as investing another 14k. That is just the absolute amazing power of dividend growth investing. Keep up the great work!
Lanny,
Excellent stuff. I need to go back and calculate this myself. Two questions – 1 – is this just your taxable account, or does it include all your accounts? 2 – Did you not include your Canadian stocks? Calculating the impact of their raises I would imagine to be difficult with the fluctuation in currencies.
Dividend growth is definitely making massive progress for me too, and I am very interested in the day when my raises can break $500 / year.
– Gremlin
Nice job and thanks for bringing up the numbers! Receiving those increases without adding additional capital is really motivating!
I haven’t added my numbers of dividend increases. I don’t think it is going to be a lot but I should check it out and start tracking it annually 🙂
Let’s see how generous the companies are in 2019!
BI
Excactly. While the stock market plummeted in December, many financial bloggers achieved a new record dividend income. This demonstrates that investors with solid dividend stocks don’t need to be afraid of the moods of the stock market.
See here:
https://dividendstocks.cash/blog/income-heroes-update-december-2018/
Regards,
Torsten
I like it! I love seeing the impact of rates increases have on my portfolio, which is why I break the rate impact and the volume (change in shares owned) each month when reviewing the dividend income. It is great to see high single digit rate growth or higher year to year in light of recent annual inflation data of ~2%. Then, when you quantify how much additional capital you’d have to invest now to receive an equivalent amount of dividend income provided by the rate increases, it is an eye opener. Congrats!
PIV
Awesome! Love seeing dividend increases. I had 5 of those in my portfolio. Every little bit helps. Going to be a good year!
Daze –
Heck yah and the divvy increases are massive and the impact this year will be strong too.
-Lanny
The words “dividend raise” have to be two of the greatest words for anyone building a DGI portfolio. You’ve done a great job highlighting that here, and as you noted the magnitude of the raises really shines through when you calculate the amount of capital it would require to produce that amount of dividends.
You had an impressive year for sure, and hopefully that will continue into this year. Wouldn’t it be nice if our employers provided raises like this too?