Hey all, sorry its been a while since I’ve posted. If you’ve followed me on Seeking Alpha you’ve noticed my activity there has picked up a bit of late with several new articles over the last 3 weeks.
If you’ve done much reading on this site, you are probably aware that I enjoy keeping watch lists on various sectors of the stock market. Nike Inc. $NKE not only resides on the consumer discretionary sector watch list, but has also made appearances on some of the high growth lists I’ve put together as well.
While Nike has been on my radar for some time, I have avoided purchasing it for two reasons:
- Valuation: Nike has generally traded with a PE in the high-20’s since I built my dividend growth portfolio in early 2013.
- Low Yield: Nike pays out just 30% of its earnings in dividends, which results in a yield below 1.5%.
I am all smiles after a handful of dividend increases were announced in the DGI For The DIY portfolio. Over the last two weeks, 5 more companies declared new dividend rates, providing me with another nice boost to my income.
With these increases, ten of the eleven companies from my portfolio dividend growth projections have now made announcements. I previously wrote about the increases from Polaris Industries, Church & Dwight Co. and Gilead Sciences, and Coca-Cola and Dr Pepper Snapple. Today I will give my thoughts on the most recent increases coming from Xcel Energy Inc. $XEL, Ross Stores, Inc. $ROST, GameStop Corp. $GME, Digital Realty Trust $DLR, and QUALCOMM Inc. $QCOM.
Just wanted to put out a quick note that I am currently working on a new article for Seeking Alpha that will highlight my Top Ten Technology Stocks For Growth And Income. As a “sneak peek” for the upcoming article, I am publishing the watch list I will be using for my selections.
On January 25th, I published the dividend increase predictions expected in the DGI For The DIY Portfolio during the first quarter of 2017. After seeing dividend growth announcements from Polaris Industries, and then from Church & Dwight and Gilead Sciences, my sights moved towards the two soft drink companies in my portfolio, The Coca-Cola Company $KO and Dr Pepper Snapple Group, Inc. $DPS.
Two weeks ago I published my predictions for the 11 dividend increase announcements there were expected in my portfolio during the first quarter. Shortly thereafter, Polaris Industries Inc. $PII announced a 5.45% boost to its dividend, which was a pleasant surprise to the upside compared to my prediction.
On February 7th, two more companies, Gilead Sciences $GILD and Church & Dwight Co., Inc. $CHD, announced their new rates. Before we discuss the increases, let’s take a look at my original prediction.
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.
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).