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DGI For The DIY: February Dividend Income Review

The month of February is in the books, and it was an extremely volatile one for the stock market. It was also a busy month for me personally, as deadlines led to overtime at work and frequent snowstorms provided me with ample exercise opportunities in shoveling out the driveway.

I did find time to have some fun though, as we made it to a Jackrabbit basketball game, visited the Pheasant’s Forever Convention, and enjoyed a morning of sledding in the fresh snow with some friends.

Jackrabbits and Pheasant Fest
February Fun: Jackrabbits and Pheasants

The DGI For The DIY portfolio didn’t skip a beat either, as it continued to pump out an ever-increasing stream of dividends.

I’ll get to those numbers later, but before we do, let’s take a look at how the overall market performed during the month.

February Stock Market Review

If you’ve been paying attention at all to the financial news programs, you’re aware that February was a rough month for the stock market.

Chart of February 2018 market returns.
Market Returns: February, 2018

As the chart shows, February started with a huge market sell-off, with the major indices down more than 8% in the first week of the month. Prices did recover some thereafter, but still ended down several percent from the all-time highs set in January.

It’s time like these that I love being a dividend growth investor, because falling share prices are actually a benefit to the strategy. When prices fall, my portfolio yield rises, making reinvestment of dividends even more effective. This leads to quicker income growth as more shares are added with each dividend reinvestment.

Unfortunately this portfolio no longer has any cash contributions going into it, so I wasn’t able to make any extra purchases other than those made automatically with dividend reinvestment.

For those who did have some fresh powder, congrats on the buying opportunity!

February Dividend Income Report

I find that focusing on the portfolio income rather than portfolio value, it is much easier to stay calm when those daily 500 point swings hit the market.

I update my spreadsheet a couple of times a week as new dividends hit the account, and each I time I do, the projected portfolio income rises like clockwork.

Knowing that the income keeps going up regardless of portfolio value keeps my emotions in check. My attitude towards market corrections has changed from one of anxiety to one of opportunity, which really helps when investing with a long-term buy and hold strategy.

Here is how the portfolio performed on an income basis in February, and how that compares to 2017’s numbers.

Dividend income growth for February, 2018.
Dividend Income Growth – February, 2018

February was another excellent month for the portfolio, as dividend income increased by 18.7% over last year.

Six companies (Apple $AAPL, AbbVie $ABBV, Ameriprise Financial $AMP, Lowe’s Companies $LOW, Omega Healthcare Investors $OHI, and Starbucks $SBUX) paid me at least 10% more in dividends, and all but CVS Health $CVS and Kinder Morgan $KMI showed increases of greater than 5%.

This will be the final quarter than Kinder Morgan is a growth laggard however, as it is planning to increase the dividend by 60% with its next payment.

I’m really looking forward to that increase, as it’s been a long test of patience in holding Kinder Morgan since it cut the dividend by 76% in early 2016. With crude prices rebounding, I’m hopeful that this is just the beginning of a long run of dividend growth for the company.

Meanwhile, CVS Health won’t be seeing dividend growth anytime soon, as it announced a dividend freeze along with its acquisition of Aetna.

According to page 18 of its investor presentation, its expects to keep the dividend flat until it de-leverages the balance sheet after the acquisition.

I’ve decided to hold my shares despite the temporary dividend freeze. Both CVS and Aetna have long track records of double-digit growth, and I want to be a part of the combination going forward.

AET 15YR FAST Graph
Aetna (AET) – 15YR FAST Graph
CVS 15YR FAST Graph
CVS Health (CVS) – 15YR FAST Graph

With the large cash flows that both of these companies throw off, I expect CVS to de-leverage rapidly. Once debt hits the 3X level, I think CVS will grow the dividend at a high rate once again until it gets the payout ratio back up to its normal level.

In addition to the holdover positions that grew income, there were also new payments made by two companies that were added to the portfolio during the last year: Mastercard Inc. and Tanger Factory Outlet Centers.

Mastercard was added in December, when I decided to “Shuffle My Dividend Growth Deck” and add additional growth to the portfolio.

As you can see by the small payout, Mastercard isn’t much of a dividend payer yet, but I remain quite bullish on its long-term growth prospects. What it has lacked in dividends, its made up for with capital gains, as the position is already up nearly 20% since purchase.

I purchased Tanger Factory Outlet Centers last June for its 5% yield and consistent growth. It continues to pay an attractive yield, but thus far hasn’t shown any growth, and has lost 20% of its value since then.

I’m still being patient with the position, and am content at this point to reinvest dividends at its higher yield point. I’m looking forward to the April dividend declaration, which is Tanger’s typical date for announcing new dividend increases.

Portfolio Dividend Income History

Here is the updated spreadsheet showing the dividend history of the portfolio since its inception:

Table of dividend income for the portfolio.
DGI For The DIY: Dividend Income History

The portfolio is off to a great start so far in 2018. With the recent dividend increase announcements, the portfolio is now projected to produce over $2,202 in annual dividends over the next 12 months.

My hope is with some big increases to come, I can blow that number out of the water. I think $2,300 for 2018 is a solid target, which would be ~15% growth over 2017’s total.

February Dividend Announcements

February was an excellent month for new increases, as ten difference companies announced higher dividend rates in the portfolio.

Announce DateCompanyTickerPrevious Payout RateNew Payout RateSequential IncreaseYear Ago Payout RateYoY IncreaseDividend YieldLink
2/2/2018Polaris Industries Inc.PII$0.5800$0.60003.45%$0.5803.45%1.96%LINK
2/5/2018Church & Dwight Co., Inc.CHD$0.1900$0.217514.47%$0.19014.47%1.72%LINK
2/6/2018Gilead Sciences, Inc.GILD$0.5200$0.57009.62%$0.5209.62%2.82%LINK
2/8/2018Watsco IncWSO$1.2500$1.450016.00%$1.25016.00%3.29%LINK
2/8/2018Union Pacific CorporationUNP$0.6650$0.73009.77%$0.60520.66%2.13%LINK
2/15/2018The Coca-Cola CoKO$0.3700$0.39005.41%$0.3705.41%3.48%LINK
2/15/2018AbbVie IncABBV$0.7100$0.960035.21%$0.64050.00%3.22%LINK
2/16/2018NextEra Energy IncNEE$0.9825$1.110012.98%$0.98312.98%2.87%LINK
2/21/2018Xcel Energy IncXEL$0.3600$0.38005.56%$0.3605.56%3.51%LINK
2/27/2018EOG Resources IncEOG$0.1675$0.185010.45%$0.16810.45%0.72%LINK
Averages:12.29%14.86%2.57%

The average year-over-year increase was 14.86%, led by Union Pacifc $UNP and AbbVie $ABBV, who both announced their second increases in less than a year.

Both companies highlighted the corporate tax cuts as the catalyst for out-sized increases. Church & Dwight $CHD also mentioned the lowered rates as reason for a larger increase this year.

NextEra Energy $NEE announced a 13% increase as I expected, but also provided guidance for 12-14% dividend growth through at least the year 2020.

At 2.87%, NextEra doesn’t have the yield of some other utilities, but more than makes up for it with growth. I’m looking forward to many more dividend increases from this company in the future!

It was also good to see EOG Resources announce a dividend increase, as it had paid the same $0.1675 quarterly rate since October of 2014.

With crude prices now over $60, and storage levels dropping, this bodes well for future growth with the company.

Recommended Reading

If you are interested in a list of high quality dividend growth companies for your research, check out David Van Knapp’s recent article “What Are The Highest Quality Dividend Growth Stocks?” on Seeking Alpha.

The article provides David’s ranking system using Value Line, Morningstar, and S&P ratings to score 68 of the best dividend paying companies in the market.

Quality is just one metric to use when selecting companies, and these aren’t all buys at current prices, but it sure is a nice list to get research started with.

If you haven’t heard of David Van Knapp, he is one of my favorite dividend growth authors, and is a big reason why I am now using the strategy today.

I recommend checking out his profile, he has 286 articles to date on Seeking Alpha, and he does an excellent job of explaining the strategy.

What I’m Working On

It’s already been 15 months since my last update on the utility sector, and with the recent drop in share prices due to rising interest rates, it seems like a great time to get a new article published.

I’m about 1/3rd of the way through updating the spreadsheet, and hope to get a new Top Ten List for the sector published on Seeking Alpha by the end of the month.

Conclusion

The stock market showed plenty of volatility during February, but my dividend income did nothing but continue its growth higher. This will continue going forward as more dividend increase announcements are made in the portfolio.

I’ve now hit the $2,200 mark in forward income, and set my sights ahead on the next milestone of $2,300.

I hope this update finds you well, and wish you Happy Investing in March!

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