I was just going over some of my sector-based watch lists and was struck by the wide variety of dividend payout ratio targets that have been set by companies. This got me thinking about how often investors, and specifically dividend investors, use payout ratio as an initial screening tool for finding potential investments.
Not only do payout ratios vary significantly from sector to sector, but they also can vary significantly between companies operating in similar businesses. For example, it is quite common for utility companies to pay out more than 50% of their earnings in dividends, as they operate in generally stable businesses that have predictable earnings. However, when looking at my 30 stock utility watch list, there is a range of targeted payout ratios from 40-75%, with UGI Corporation $UGI on the low end and Dominion Resources $D at the top.
I got a nice surprise this afternoon when Polaris Industries Inc. $PII announced a 5.45% increase to the dividend by raising the quarterly payout from $0.55 to $0.58 per share.
Just yesterday I released my predictions for dividend increases in Q1, where I wrote this about my expectations for Polaris:
Polaris Industries Inc. (NYSE:PII) has really struggled the last year and saw earnings fall by nearly 50% in 2016. While they are expected to rebound in 2017, the payout ratio is well above the historical ~30% rate, which will likely lead to another minimal increase in the dividend. I am predicting a penny increase to $0.56, which is just 1.8% more than last year.
Needless to say, I am happy to see management step up and give a decent dividend boost despite the headwinds. It’s also good to hear management make a point to talk about the dividend, as it reinforces the fact that dividends are a top priority for the company.
This is what CEO and Chairman Scott Wine said in the press release (bolded by me):
“We are very proud of our 22-year history of increasing dividend payments. We have maintained a disciplined, consistent approach to returning cash to shareholders, and dividends remain one of the important ways we can deliver further value. We believe this most recent dividend increase underscores our confidence in Polaris’ future growth and profitability prospects, steady cash flow generation, and continued strong financial position.”
One of the great things I like about dividend growth investing is that by focusing on the dividend rather than the share price helps keep me from acting on emotion with my investments. It’s easy to throw in the towel during times like this when a company has a setback or two, sees earnings take a hit, and the share price suffers.
However, emotions of fear and dismay can cause one to sell out of a position at the worst time, often near the bottom before things turn around and shares head higher. This is something I personally struggle with, and am making a point of emphasis this year to limit turnover in my portfolio.
Polaris has certainly had its share of miss-steps over the last two years, and those coupled with a tough business climate has caused earnings to be cut in half. However, it deserves to be given a long leash considering its tremendous performance over the last two decades, which is why I continue to hold my shares.
Today’s announcement gives me some encouragement that I’m doing the right thing by doing so.
One of the more enjoyable aspects of dividend growth investing is being able to see my income grow on a consistent basis. Between the reinvestment of dividends and the organic growth produced by dividend increases, my portfolio income has been on a steady march higher since it was built in early 2013.
It’s a nice comfort knowing that my income will grow regardless of what the market is doing on a day to day, monthly, or quarterly basis. Even better, if the market does have a large correction, it actually works in my favor, as my dividends are reinvested at an even higher yield than they would have otherwise, further increasing my income.
Seeking Alpha contributor David Fish recently wrote a series of articles highlighting the Champions, Contenders, and Challengers that are expected to raise their dividends during the first quarter of 2017. This gave me the inspiration to take a closer look at the holdings in my portfolio, and see which ones are due to raise their payouts.
Between David’s list and my own tracking spreadsheet, I was able to find 11 companies that are likely to announce increases with their next declaration. Here they are, along with their recent dividend growth information:
I wrote up an article on Seeking Alpha providing my dividend growth expectations for each company, and my guess at the date that they will be announced.
If you are interested in seeing those predictions please follow the link below.
Another eventful year in the market has come to a close, and that means it is time to provide a new update on my dividend growth portfolio.
This update is a bit different for me, as it is the first one I’ve made since starting this new website. I’m still trying to find balance between simply restating what I already said in my Seeking Alpha update, and providing some new insight here.
2016 was a good one for the markets, as the DJIA gained more than 15%, while the S&P gained 11% for the year. My portfolio also did quite well, putting up 15.6% income growth and increasing in value by 24.1% (including contributions).
After taking a beating in 2016, it appears that the Healthcare Sector may be on the rebound. I have been taking advantage of the cheap prices by consistently adding to my positions over the last 6 months, with new positions and multiple buys made in Abbott Labs $ABT and CVS Health $CVS, along with adding to my positions in Omega Healthcare $OHI, and AbbVie Inc. $ABBV.
Here are the prices for those transactions, and how they have done so far.
On the surface, those numbers don’t look all that great, as the first three purchases made are still underweight. I was a bit early in jumping in on CVS Health Corp., and my first two buys remain under water. However, I made a third purchase following the big drop on earnings, and that has worked out well so far, as that buy is up nearly 11%.
It was a busy Tuesday in the Landis household, as I had my first day back at work after Christmas vacation, and with my son’s 5th birthday coming up tomorrow, we needed to make a Costco run to pick up some supplies for his big day.
After making the trek through the store with my two sons in tow, getting the loot loaded into the mini-van, and then freezing my ears off filling gas in sub-zero wind chills, I got a nice surprise when I checked my phone and saw an alert from Twitter.
Enclosed was a message from Lewys Thomas and a link to his blog post highlighting his picks as the Top 100 Blogs For Dividend Investors That Will Drive Returns. To my surprise, he called me out as #25 on the list, along the likes of some of my favorite authors including: Brad Thomas, Jason Fieber, Chuck Carnevale, and Mr. Money Mustache.
To say that I feel honored to be mentioned among them is quite an understatement. Never in my wildest dreams did I think my passion for investing, and interest in sharing my thoughts on it, would earn me notoriety or any sort of following. It was simply a way for me to continue learning about the market and hopefully make a few bucks a month to pay for my fantasy sports habit.
Now, nearly four years after penning my first piece, I have over 3,000 followers on Seeking Alpha, 99 published articles that have generated a half-million pages views, and this sparkling new website. All I’ve ever wanted to do was share my passion about the stock market with others, and I am humbled and ecstatic that people value my work.
I’m hopeful that this website can live up to my dream for it (and the ranking bestowed to it by Lewys), and that it can prove useful to others trying to build up the courage to start their own portfolios.
We all start from scratch, here’s to continued learning and making the most of what we’re blessed with!
I am also planning on adding “Stock Selection” and “Portfolio Construction” pages, but thought I’d also open it up to readers as well to see if they can think of other important topics that should be covered.
As of now I am just populating these different topics with articles that I have personally written, but as time goes on I also plan to add articles from other authors from Seeking Alpha and other sites as I come across them.
Do you have any MUST READ articles in your bookmarks that you think would be worthwhile to others? If so, please share in the comments below and I will consider them for addition.
Thanks, and Happy New Year!
A Site For Do-It-Yourself Dividend Growth Investors