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!