Earlier this year, I started publicly tracking dividend growth as it relates to my portfolio. I’ll update this information every quarter, which will provide relevant and important information on dividend raises announced by the companies I hold equity in, the size of those dividend increases, and how that affects my bottom line with real-life numbers in real-time.
What you see below is every company that I currently own a stake in that declared a dividend increase during the second quarter of 2015. So the ex-dividend date or pay date won’t be counted here. In addition, I only count stocks if I was long before the increase was announced. If I buy a stock shortly after a dividend increase was announced, then I don’t count it here. So this is a true reflection of an actual increase in my income, down to the dollar.
This is really exciting stuff. Dividend growth is what I refer to as the “secret sauce” in building and rolling a snowball. It provides a huge exponential compounding effect, especially as the dividend income grows. And now you’ll get to see how that works with real numbers here.
|Company||Ticker||Old Per-Share Dividend||New Per-Share Dividend||% Increase||$ Increase (Annual)|
|Armanino Foods of Distinction Inc.||AMNF||$0.018||$0.019||5.6%||$3.20|
|Bank of Nova Scotia||BNS||$0.68 CAD||$0.70 CAD||2.9%||$2.40*|
|ITC Holdings Corp.||ITC||$0.1625||$0.1875||15.4%||$3.00|
|Illinois Tool Works Inc.||ITW||$0.485||$0.55||13.4%||$9.10|
|Kinder Morgan Inc.||KMI||$0.48||$0.49||2.1%||$7.20|
|Altria Group Inc.||MO||$0.52||$0.565||8.7%||$14.40|
|Realty Income Corp.||O||$0.19||$0.1905||0.3%||$0.42|
|Omega Healthcare Investors Inc.||OHI||$0.54||$0.55||1.9%||$3.00|
|Philip Morris International Inc.||PM||$1.00||$1.02||2%||$9.20|
|Reynolds American, Inc.||RAI||$0.335||$0.36||7.5%||$1.40|
|Verizon Communications Inc.||VZ||$0.55||$0.565||2.7%||$2.34|
|W.P. Carey Inc.||WPC||$0.954||$0.955||0.1%||$0.30|
*These amounts are reflective of current exchange rates.
It’s just amazing. Secret sauce, indeed. Since the start of the year, my annual dividend income has basically increased by more than $270 by way of dividend raises alone. And that’s a number I can pretty much count on moving forward, other than fluctuations with currency affecting my foreign holdings (that tends to even out over the long haul). What you see in that chart is essentially, in aggregate, 16 “pay raises”.
And guess what I had to do to receive these pay raises?
Absolutely nada, other than own stock in the above companies.
I didn’t have to show up early, stay late, deal with office politics, make phone calls, manage an email list, or meet quotas.
I just had to sit back and wait.
Patience is tough sometimes, but my progress thus far is proof that patience and persistence works. Since I started investing in 2010, I’ve received countless pay raises every single year. It takes a little time for this to start noticeably working, but the additional cash flow is real.
An extra $270 per year might not sound like a lot of money.
But consider that it would take over $7,700 invested at a 3.5% yield to achieve the same effect.
Said another way, that’s $7,700 less I have to invest now to generate that same increase in my annual passive income. Wonderful!
And even better, every dividend raise increases the base upon which future dividend raises will stand. An annual $1.00 dividend that turns into $1.10 is a 10% dividend increase. But if that respective company announces another 10% raise the following year, that means you’re now collecting $1.21, or $0.11 more. Repeat that and you’re looking at $1.33, or $0.12 more. Rinse, repeat, become wealthy.
I once compared my portfolio to a tree, whereby each position is a branch. And each branch produces bountiful fruit. That fruit – the dividends – is what I’ll eventually live off of, choosing to pluck the fruit and leave the branches intact rather than cutting the branches, possibly slowly killing the tree
Well, this is where the tree starts to tend to itself. It’s growing branches all by its lonesome.
Not only that – wait, there’s more – but dividend reinvestment continues to become more powerful when combined with dividend growth. Using the above example, you’re at first reinvesting a $1.00 dividend. Before factoring in any dividend reinvestment, your dividend goes up to $1.10 pretty quickly just with dividend growth alone. But when you reinvest your dividends, you’re buying more shares with capital you didn’t have to work for, meaning the dividend growth will become exponential. You’re receiving ever-growing capital with which to buy more shares which are also simultaneously increasing their dividends, allowing you to buy even more shares.
I could theoretically stop investing today and the dividend income the portfolio generates along with dividend raises and dividend reinvestment would still eventually render me financially independent – I’m a guaranteed millionaire at this point. The snowball is starting to move along without me. The good news, however, is that I’m not tired yet. I’m not done pushing. So these results will just continue to exponentially improve with every dollar of fresh capital I invest.
Out of the 70 stocks in my portfolio, this update represents 16 of them that increased their dividends this year. The first quarter update discussed another 19 that increased their dividends. And the second quarter update discussed another 18 dividend increases. But there’s some overlap involved – BNS, KMI, O, OHI, WPC, and SBSI have all shown up in multiple reports this year due to multiple dividend increases announced by these companies in 2015.
However, six companies I initiated positions in over the course of the third quarter – United Technologies Corporation (UTX), Colgate-Palmolive Company (CL), Fastenal Company (FAST), HCP, Inc. (HCP), ACE Limited (ACE), and Diageo PLC (DEO) – announced dividend increases before I purchased stock. While those increases aren’t represented in the chart because I didn’t own them prior to the pay raises behind handed out, they still have a material effect on my passive dividend income moving forward and I still count them as dividend increases for the year when looking at the total number of stocks in the portfolio that have handed out “pay raises”.
This quarter was pretty solid, all in all. Although the overall dividend growth percentage for the quarter was lower than my annual running total, it was brought down by a few small increases by companies that tend to raise their dividends multiple times per year (like Kinder Morgan). I will say that Philip Morris International’s dividend increase was disappointing, although not totally unforeseen due to currency effects. In addition, W.P. Carey’s dividend growth this year has been disappointing. But that’s why we diversify. And big raises from companies like Microsoft, Illinois Tool Works, and Altria have helped balance that out.
Looking at all of that, 53 out of the 70 stocks in the portfolio have increased their dividends this year. That’s a great result thus far. And the overall dividend growth is outstanding in percentage terms across the portfolio. I expect that a few stocks will end up disappointing me by not announcing dividend raises this year, though. But I’ll factor any of that in with the last update, as zeros will bring the overall percentage down. Nonetheless, I’m pretty happy here. If I can finish the year with ~7% overall dividend growth, I’ll be smiling.
Notably, many of the stocks that are included above generally increase their dividends more than once per year. As such, the YTD total for the percentage increase will continue to factor in YTD increases in stocks’ respective dividends, which will be more accurate than averaging out the quarterly totals. However, I’m also including the quarterly totals so you can see true quarter-to-quarter incremental increases in income through dividend growth.
One last important aspect here is keeping perspective on the increase in dividend income in percentage terms. The YTD increase is somewhere around nine times the inflation rate of 0.8% we experienced last year. So not only is my purchasing power increasing, but it’s doing so at an incredible rate.
Full Disclosure: Long all aforementioned stocks.
Have a great quarter for dividend growth? Dividend raises living up to your expectations? Overall income growth up to where you need it to be?
Thanks for reading.
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