Unexpected Positives as a Dividend Investor

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.

surprise

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

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26 thoughts on “Unexpected Positives as a Dividend Investor

  1. Lanny,
    It is exciting every time I login and see one of those deposits made for me by an investment. It is also great watching dividend increases happen, through no effort of my own ~ like the ones I am getting from YUM and AXP this month. Also YUM spun off its China division (YUMC), and its nice to get a piece of that action!
    -Gremlin

  2. I think that spin-offs can be one of the coolest aspects of investing, when the parent company actually does a pure spin-off. Procter & Gamble and GE recently took the route of making you exchange shares of their stocks if you wanted to be apart of the spin-off stocks they were offering. Lame.

    It’s funny, because I’ve read that Sears has been an amazing investment the last 25 years or so, precisely because of spin-off companies. If memory serves, Discover Financial, Allstate insurance, and two or three other companies have spun off from Sears. Even though, the parent company is just an old and declining retailer, the spin-off companies have boomed for shareholders. Another reason you can’t simply look at the stock price charts and determine the return you’d have gotten.

    • Dwishes –

      Exactly! And yep, couldn’t agree that it is Lame that you aren’t granted shares : ) Bah… can’t win them all.

      Wow – didn’t realize that those companies were part of Sears, as I know quite a few folks that use Allstate, have discover and will get bargain appliances at Sears, talk about hilarious. Looks like the spin-offs did well for the separately ran companies, not sure how sears is doing…Wonder what you’d have at this point if you held onto those shares with all spin offs…

      -Lanny

  3. You summed up my thoughts on DGI perfectly.

    Boring companies do exciting things.

    I used to own SBUX like 10 years ago, I thought they were done growing back then…

    Also 46 companies! That is a huge portfolio. I’m in the 20’s and it’s tough to keep track of all the news.

    • Divi cents –

      Thank you for the comment and I couldn’t agree more. It makes it more fun and interesting, as well as new ways to add value to your portfolio, and hey – even income.

      If you take a deep breath and realize that the companies you own aren’t that complex – it makes it easy to monitor, you know? You’ll definitely be in the “know” when those companies do something as well. Doesn’t hurt to touch base though every now and then to see what’s happening.

      -Lanny

  4. Wow, congrats in raise and increase in the number of businesses. Best of all, all of these things happen without any planning, No overtime hours. When you pick solid businesses, just sit back and watch the seeds become trees then fruits.

    Cheers!

    • Viv –

      Exactly – all of the unexpected fun, by just playing/staying the course and owning these businesses. I never would have thought that this much could occur. I’ve experienced a lot in only 7.5 years of investing, but it really started to pick up the last two years.

      Good luck and keep it up!

      -Lanny

  5. Stating all the examples shows how much is going on when you invest for a while. Who said anything about investing being boring?

    We have never encountered spin-offs, mergers or acquisitions yet. It can be quite interesting. Even so much that some people actually buy companies because of these same reasons, taking up some profit along the way,.

    • Divonomics –

      Thank you, exactly – time and position starts really working for you without you planning or thinking of the items to occur.

      How long have you been investing again? Only time it will take for you to experience one. You’ll enjoy it and share the same emotions when it occurs. Looking forward to you experience it!

      -Lanny

  6. I’m glad someone’s excited about the QCP spin off, because I’m not.

    It’s not that I don’t agree with what they’re doing. I do think that the spin off is probably the right thing to do…but it’s the right thing to do because Manor Care is in trouble, and that element of the portfolio needed to be quarantined (pun intended).

    That’s just more of a bummer to me than an “unexpected positive”, but maybe I’m being too skeptical?

    • CFW –

      Definitely understand your point. I think this should help garner focus on that company/side of things and the plan is to unlock that value on both ends. Obviously let’s see some earnings calls and 10Qs/Ks and press releases to see what the results are!

      -Lanny

  7. Well said. There are a lot of positives with being a dividend investor. I remember actually getting checks in the mail every quarter when I first started dividend investing. $5 from Homestake Mining Co. Spin offs have also gave me a larger portfolio. I think I have about 9 new names off the top of my head in my account just from spin offs. ABBV, ALLE, ADNT, YUMC, HYH, QCP, CCP, MDLZ, VSM. WHo says investing in “boring” stable dividend stocks isn’t fun. That’s a lot of action for no tech names like TSLA, FB, LNKD or whatever. Thanks for sharing.

    • DivHut –

      Wow, that’s awesome – 9 new names?! That is something else. I assume, also, that time in the game helps, right? Nothing better than spin-offs providing you another check, eh? haha

      -Lanny

  8. You nailed it. Investing is not boring! And if you long enough doing it, some nice surprises will happen.
    I really love dividend raises. An not to mention spin-offs.

    I try to report all my dividend raises. Everytime I write a post about it, I get a smile on my face ????
    And since last year I’m the proud owner of SOUHY. And what a surprise last month that they started paying dividend

    Cheers,

    Pollie

    • Pollie –

      Thank you for the comment, definitely doesn’t have to be boring ; ) Depends on how one thinks! Definitely can have a boring company that has positive events.

      The div raises are awesome, and yes the SOUHY dividend was great, just need BBL to come back to life!

      -Lanny

    • Charlie –

      Wow… that’s right, YUM was a Pepsi spin-off… talk about how wild that is. That was what, 20 years ago? Talk about value and how well that turned out! Any other big ones that you hold in your portfolio? Fun stuff.

      -Lanny

  9. I to was very shocked at the dividend increase that SBUX announced! I have worked at the company for 8 years now and I have never seen such a great increase! The company is definitely still growing which is hard to imagine for a 20 Billion in revenue per year company. I see it everyday at works, stores sales continue to climb year over year even though it seems like it’s been the best year ever. It continues to get busier and busier! I love this company and job and will continue to provide to it’s success to continue to meet the expectations of investors like yourself and myself alike!

    • DD –

      Definitely was shocked, but not stunned : ) No way – have you worked there?? How is it? What’s your favorite part? How do you feel about Howard? PUMPED Please respond back if you can!! Talk soon DD.

      -Lanny

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