Good morning everyone! Hope you had a great weekend and are breathing in the spices of the Fall scented candles and are walking out to the mail box to pick up a dividend check or two. Not figuratively, but that’s what sometimes happens as a dividend investor. You wake up, sign online to your account and see businesses sending you a check for the funds you have placed in the market as their source of liquidity to operate a business. These are always fun surprises or moments each and everyday as a dividend investor, but over the last few weeks, more and more surprises and unexpected positives have come from being a dividend investor.
Who doesn’t love unexpected positives on your stock portfolio? I know as a dividend investor – I cannot get enough when a dividend increase comes unannounced/unexpected and/or even if I knew the dividend announcement was coming and they blew my expectations out of the water. There are many unexpected positives that come from being an investor, one that takes time, consistency and removal of emotions as we go through financial cycles.
Unexpected positives Examples
1.) Starbucks (SBUX) announced a staggering 25% dividend increase. I mean holy smokes, one would have thought the growth at some point would have slowed down, but no, no not here, the engine just kept on churning. This was very unexpected and a surprise to dividend investors. Their dividend growth over the last 3 years has looked like this: 23%, 25% and 25% (from 2014-2016). Typically a low yield, high growth company begins to rear back the growth after they have finished with the expansion phase, and the yield starts to average out at a higher rate (they’ve been over 1.50% for quite some time now, which is well over the 1.2-1.3% typical yield). Now, SBUX is yielding 1.90%, something that is RARELY seen. Yes, a very unexpected but very welcoming surprising. Thank you Mr. Howard Shultz! To conclude here – dividend increases that come above expectations are phenomenal and are unexpected positives. Even my Chimera REIT (CIM) that I own, just announced a 4.17% dividend increase, and I did not even expect this, at all, whatsoever. A huge benefit as a dividend investor are these little cherries on the cake.
2.) Spin-Offs. Talk about unexpected actions and events over the years as a dividend investor. I have had three companies spin off pieces of their business, providing me ownership in an entirely new company. The first of many began with BHP (BBL) spin off into SOUHY – a coal/metal mining company in Australia, they paid a dividend last month of $0.046/share. Next, RMR Group (RMR) spun-off from Senior Housing REIT (SNH). They provide management services to REITs and currently provide a dividend of $0.25 per share per quarter. Additionally – no change from SNH’s dividend, which is sweet. Lastly, and this just finalized, was HCP’s (HCP) spin-off of Quality Care Properties (QCP). QCP has 257 post-acute / skilled nursing properties, 62 memory care / assisted living properties, one hospital and one medical office building. With this spin-off, HCP shareholders now own 1 share for every 5 of HCP. One downside was a decrease in the dividend from HCP due to this, however, with QCP in play – we shall see what their distribution is like and/or if the dividend is at/above/below the old & new HCP dividend. Within the last 12-18 months, these 3 new entities have landed in my portfolio. Something tells me that this can/will continue to happen. Very unexpected but positive news, as this allows the businesses to gain more focus, as well as provides the investors more value and “potentially” more dividends!
3.) Mergers & Acquisitions. Yes, M&A, the big deals and events. These types of transactions move markets – think about the whole AT&T (T) and Time Warner (TWC) shake up that is currently going on. How about even when AT&T (T) acquired DirectTV a while ago? I’ve experienced a few deals myself, remember Lorillard (LO) and Reynolds American (RAI)? I declined to own the RAI shares and purchased more Philip Morris (PM) instead, and WHAM! RAI is now in talks of being acquired by British Tobacco (BTI)!! Let me put the breaks very quickly here. Why is this an unexpected positive to a dividend investor? A few reasons – with AT&T (T) buying DirectTV – this assisted in back-office reduction, different product line expansion, as well as increasing operating cash flows – more than likely – should help indirectly to keep the dividend moving along just fine (yes, they announced another too-damn consistent 2% increase, I’ll take it). What about with my LO stock being acquired? Well, the price appreciation popped quite a bit and I sold, to use those proceeds to buy a beaten down PM, to further expand my dividend income. To summarize – mergers & acquisitions are great unexpected positives for dividend investors in most scenarios. Obviously, you can run into the wall of not being satisfied with the premium if your stock was acquired and/or no immediate undervalued stock to invest into. Another scenario could be that your company extremely over-paid for the entity it is acquiring and that it isn’t accretive to earnings and negatively impacts your dividend payouts, due to liquidity and tightening of cash. However, most board of directors and management teams are extremely sensitive (and hopefully smart) as it relates to all of this.
Conclusion on unexpected positives
As you read the above items, I cannot help but think how exciting it is to invest into easy to understand and boring companies, such as AT&T (T). Who really would have thought they’d be buying such big entities? Know what Starbucks (SBUX) does? Yes, they sell and service coffee in a welcoming atmosphere. What does a Senior Housing REIT (SNH) do? They have locations where senior residents live and accept care to be provided. Why are these companies all of a sudden exciting? Because of the unexpected positives that can happen, described by the three items above.
Luckily and fortunately, I own quite a few companies in the portfolio now, 46 specifically if you exclude funds. This provides a higher chance for one of these events to occur. As a dividend investor, I like to stick as much as possible, to companies I understand, as this usually leads to transactions & events that are understandable. As much as I try to plan & set expectations on the companies I own, sometimes, just sometimes they come out with unexpected positives through transactions & announcements they have. This is all fun in the pursuit to financial freedom and if companies I own want to pay a higher dividend than before or increase it at a higher clip than I expect, heck – so be it (as long as it doesn’t hurt that payout ratio too bad, of course ; ) ).
What are your thoughts on the unexpected transactions & announcements that your dividend stocks have? Do you agree that they are positive? Do you see the glass as half full or half empty? Do you feel enthused by this post and/or have a brighter outlook/eagerness to see what is to come? Please share your thoughts, would love to read and have discussions! Hope everyone had a great weekend and talk soon. Happy investing : )
-Lanny