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DGI For The DIY: January Dividend Income Update

The Super Bowl is now over, which means the month of January has come to a close. Being a life-long Minnesota Vikings fan, this also means the inevitable disappointment that comes at the end of another NFL season.

By now I am pretty used to it, and will admit that the losses have become easier to accept as I’ve gotten older. I guess when your expectations are low, and you expect the bottom to fall out, when it finally does it isn’t as painful as when you are a child and expecting greatness.

I will turn 40 this year, and am still waiting for the opportunity to cheer for my team in the big game. I sometimes wonder if I’m in some way being a cruel parent by raising my kids to be Vikings fans like me. Do I really want them to suffer through the same annual disappointment as I do?

World's Cutest Vikings Fan
World’s Cutest Vikings Fan

However, the power of purple is hard to resist, and my daughter wears it quite well. Maybe by the time she’s in her late 30’s, we’ll finally get to celebrate a Viking’s Super Bowl win together.

So congrats to all of you Eagles fans out there who finally got to experience the joy of winning a championship! Despite not having a rooting interest, I did thoroughly enjoy watching the game, and thought it was one of the most entertaining Super Bowls in recent memory.

Market Volatility? No Problem Here!

You may have noticed that the stock market has been a roller coaster of late, with daily swings of 500+ points seemingly becoming a routine occurrence.

It’s times like these that makes me thankful I’ve become a dividend growth investor. Because whether the market is up or down, I know that my dividend income is still continuing its steady rise higher.

Don’t get me wrong, it is still painful to see my portfolio value drop in a sea of red, but there is a silver lining in that as my portfolio value goes down, the yield that it generates goes up.

Before the correction, the yield of the portfolio had dropped to around 2.8%. But now with the lower share prices the yield is up to nearly 3.1%, making dividend reinvestment 10% more effective.

That difference may not sound very significant, but every little bit helps, especially now that there aren’t any new cash contributions coming into the portfolio.

January Dividend Income Report

January was another successful month for the portfolio, as dividend income increased by 15.3% over 2017’s total.

Here is the breakdown by position held in the account:

Table of dividend growth for January, 2018.
Dividend Income Growth For January, 2018

This was a month with big swings for some of the positions, as General Electric $GE saw the impact of a 50% dividend cut, and Altria Group $MO and Nike $NKE were new positions added during 2017.

The more noteworthy increases came from Dr Pepper Snapple Group $DPS at 12.2%, Thor Industries $THO at 13.5%, and Watsco $WSO at 22.8%.

Digital Realty Trust $DLR , Realty Income $O, and Xcel Energy $XEL did well, but didn’t quite meet my goal of 10% annual growth in dividend income.

Dividend Income History

With those increases now in the books, here is the complete history of dividend income collected in the portfolio since 2013:

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

As you can see, there’s been a steady progression in the portfolio, with annual increases of 15-20%. January came it at 15.3%, which is on the low-end of my historical growth, but still well above my 10% growth target.

Between dividend reinvestment and previously announced increases, the portfolio is currently projected to produce $2,147 over the next 12 months.

This is already 7% higher than 2017’s number, and with upcoming increase announcements expected from Apple, Digital Realty, NextEra Energy, Johnson & Johnson, and Ross Stores, that projection will continue its march higher.

January Dividend Increase Announcements

Here are the announcements made in January by companies held in the portfolio:

Announce DateCompanyTickerPrevious Payout RateNew Payout RateSequential IncreaseYear Ago Payout RateYoY IncreaseDividend YieldLink
1/16/2018Omega Healthcare Investors IncOHI$0.6500$0.66001.54%$0.6206.45%9.79%LINK
1/16/2018Realty Income CorpO$0.212500$0.21903.06%$0.21054.04%5.36%LINK
1/18/2018WEC Energy Group IncWEC$0.5200$0.55256.25%$0.5206.25%3.62%LINK
1/23/2018Norfolk Southern Corp.NSC$0.6100$0.720018.03%$0.61018.03%2.05%LINK
1/25/20183M CoMMM$1.1750$1.360015.74%$1.17515.74%2.35%LINK
1/31/2018Chevron CorporationCVX$1.0800$1.12003.70%$1.0803.70%3.95%LINK
Averages:8.05%9.04%4.52%

2018 is off to a good start, as the implications of the corporate tax cut already seem to be making an impact.

3M Company $MMM and Norfolk Southern Corp. $NSC announced surprisingly large increases of 15.7% and 18.0%. Both made a point to mention lower taxes and correspondingly higher earnings as a catalyst for them.

It was also good to see Chevron Corp. $CVX come through with an increase, as it wasn’t long ago that financial pundits were raising concerns about whether Chevron would have to cut it.

Hopefully it won’t be long until Exxon Mobil does the same.

Portfolio Transactions

I did make three trades during January on the heels of the big news that Dr Pepper Snapple Group Inc. $DPS would be merging with Keurig Green Mountain.

Keurig Green Mountain & Dr Pepper Merge
Keurig Green Mountain & Dr Pepper Merge

Shares of Dr Pepper surged after the announcement, making an already profitable position, even more so. This presented me with the question of whether to hold on to my shares for the special dividend and new share of Keurig Dr Pepper “KDP”, or to book the profit and look for replacements.

I quickly realized that I’m not terribly interested in owning the Keurig business, as I feel much of its growth is behind it. So it looked at my wish list to see what potential stocks were available as replacements.

I quickly settled on Hormel Foods $HRL and McCormick & Company $MKC as my two replacements.

Hormel Foods Corporation is a Dividend Champion with a 51-year streak of dividend increases. It has struggled a bit of late, causing shares to trade roughly 30% below its all-time highs set back in 2016.

HRL 10YR FAST Graph
Hormel Foods: 10YR FAST Graph

Despite those struggles, Hormel has maintained a pristine balance sheet and has continued its acquisitive nature in adding to its product portfolio.

I expect dividend growth to slow a bit until earnings get moving again. But I think this is an excellent company, and am hopeful that it can return to double-digit growth once again.

The other addition was another Consumer Staple company in McCormick & Company Incorporated. MKC is also a Dividend Champion, owning a 31-year streak of dividend growth.

Like Hormel, McCormick has been a consistent performer over the years, regularly providing double-digit earnings and dividend growth.

MKC 10YR FAST Graph
McCormick& Company: 10YR Fast Graph

I wouldn’t call either company “cheap” at current prices, as Hormel trades for ~20X expected 2018 earnings and McCormick around 21X its estimates, but they are both better values than Dr Pepper after its run-up.

It also worked out well that they offer similar yields to Dr Pepper, as I was able to slightly increase my dividend income through the trade.

DPS Trade Results
DPS Trade Results

Yeah, the increase was only $1.26, but I’ll take it!

Annual Portfolio Update

In case you missed it, I published my annual portfolio update on Seeking Alpha in January. That article presented a more detailed look at the portfolio guidelines, goals, weighting strategy, and other information.

I also wrote an article “Shuffling My Dividend Growth Deck” that describes my thought process behind some trades I made at the end of 2017.

Those trades were the sales of AmerisourceBergen, General Electric, and MDU Resources that were made to fund the purchase of five new companies: American Water Works, Johnson & Johnson, 3M Company, NextEra Energy and MasterCard.

Through that swap I hope to remove some laggards and replace them with some higher growth positions in the portfolio.

Conclusion

February has been a rough one for the market, but maintaining my focus on the ever-increasing dividend income sure makes the daily swings easier to endure.

The portfolio continues to grow at a double-digit rate, and despite market volatility, companies I own continue to announce new dividend increases.

I hope this update finds you well. Happy Investing!

 

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