January is in the books, and what a month it was. Not only was it another month of gains for the stock market, but there was plenty of other news to go along with those gains.

The impeachment hearings have come to an end, as the Senate acquitted President Trump, removing one variable of uncertainty for stocks. The presidential election still looms, but at least for a short time there should be some calming of fears of big change to the executive branch of the government.

January 15th saw the signing of Phase 1 of the China trade deal, which was very well-liked by the markets. This gave a big boost to stocks, as it lead to optimism that trade with China would boom. Unfortunately, Coronavirus quickly overshadowed that announcement, turning China from a positive to a negative for growth expectations.

This development has had an interesting impact, as the technology sector has seemingly shrugged off any concerns and continued higher. Meanwhile, energy has once again been crushed, with WTI crude oil prices falling below $50, and Exxon Mobil $XOM approaching 10-year lows.

Needless to say, there’s no shortage of stories to follow, which can make it easy to get swept up in the craziness. However, dividend growth investing does a great job of helping one to focus on the proper object: future income growth!

Sure, it’s more fun to see stocks go higher than lower, but if you truly are investing for long-term income growth, the daily gyrations of the market should be taken with a grain of salt! Stay focused on the end goal, which for this portfolio is 10% annual income growth. Income that will eventually help fund a significant portion of my retirement.

January Portfolio Income

Speaking of income growth, January was an excellent month for the portfolio, as my passive dividend income rose by a whopping 27.1% year-over-year.

The biggest income increase came from Altria Group $MO, which was a position I added shares to in September. Meanwhile, the growth in Digital Realty, EOG Resources, and McCormick was all organic growth and dividend reinvestment, so it’s good to see them exceeding my 10% goal on their own.

Automatic Data Processing and Comcast Corp. were new additions in February of 2019, so they didn’t have any January 2019 income to compare with. Nike was sold in 2019, so it is no longer producing income for the portfolio.

Watsco, Thor Industries, and STAG Industrial were the biggest laggards, as they all grew income by less than 6%.

I’m happy overall with the growth, but it will be interesting to see how the next few months play out, as last year’s trades may make the year-over-year numbers a bit lumpy.

January Dividend Increase Announcements

As expected, it was a relatively quiet month for dividend increase announcements in January. There were just four announcements made, with Comcast Corp. $CMCSA leading the way with a 9.5% increase.

The most surprising increase came from Chevron Corp. $CVX, which announced an impressive 8.4% increase. This takes the forward yield to 4.7%, which is the highest it’s been in four years.

I wasn’t expecting much, if any, growth from Chevron considering crude prices remain in the $50’s. Such a large increase is a good sign from management that it’s confident in the future prospects of the company.

STAG Industrial $STAG and Realty Income $O continued their lackluster growth, with increases of just 0.7% and 3.1%. Neither was much of a surprise, as they work to lower payout ratios back to target levels.

STAG has previously targeted a payout ratio of 80% of AFFO, and with this small increase the payout ratio on 2020 estimates of $1.82 of AFFO finally gets the payout below that threshold. Hopefully this is the final year of small increases, and future dividend growth can more closely match earnings growth going forward.

Upcoming Dividend Increases

I maintain a historical record of all dividend increases made in the portfolio, so I enjoy looking back at prior years to see what companies may be ready to announce new increases.

The first on the list, 3M Company $MMM, already came out with its announcement, as it raised the dividend from $1.44 to $1.47 on February 4th, and increase of 2.1%.

This is the smallest increase for 3M since 2009, which was during the Great Recession. This is disappointing, but it is not surprising, as 3M’s earnings fell by 11% in 2019. The payout ratio has now risen to over 60% of expected 2020 EPS of $9.49, which would be the highest annual payout ratio in the last twenty years.

Earnings are currently projected to grow at ~7% going forward, but it may be a year or two before dividend growth picks up again as I’d expect management to want more cushion in the payout ratio.

In addition to 3M, I’m expected February increases from four other companies in the portfolio:

• NextEra Energy Inc. $NEE around February 14th.
• Xcel Energy Inc. $XEL around February 19th.
• Digital Realty Trust $DLR around February 26th.
• Home Depot Inc. $HD around February 26th.

I am expecting NextEra to announce another double-digit increase, as management has guided for 12-14% dividend growth through 2020.

Xcel Energy will likely announce an increase of ~6%, as management has guided for 5-7% annual earnings and dividend growth.

Digital Realty Trust is a bit more difficult to predict, as it is going through a merger with Interxion $INXN, and is already slightly above its typical 70% of AFFO payout ratio. As such, I’m expecting a modest increase, potentially just a penny or two, to give it a chance to digest the transaction and keep the payout at a comfortable level.

Finally, with Home Depot I am also expecting a much smaller increase this year. Management has guided for a 55% payout ratio, and the payout already stands at 44% based on 2020 EPS estimates of $10.08. With minimal EPS growth expected in 2020 or 2021, and ongoing uncertainty with the economy, I’m not getting my hopes up for much growth in the dividend.

Recent Articles

It’s been pretty quiet for me on the writing front, as I’ve published just two articles in the last month. The first was the January version of Dividend Growth Digest here on this site, while the other was my annual portfolio update on Seeking Alpha.

The 2019 Dividend Portfolio Review showed how my portfolio’s total return of 28.75% compared with the overall market, provided updated sector weightings for the portfolio, showed my progress on annual income growth, and presented information on three companies that I see as intriguing investment opportunities at current prices: Chevron, Exxon-Mobil, and IBM.

Some other articles I found interesting were the multiple Dividend Champion, Contender, and Challenger articles published by Justin Law on Seeking Alpha.

Mike Nadel provided an update on his Dividend Growth 50 project, highlighting the income growth in his passive portfolio, and sharing the Simply Safe Dividends score for each position held.

Finally, the Part-Time Investor published multiple articles recently, sharing his work looking at potential bargains in the market, and sharing his research on dividend ETFs.

Closing Remarks

2020 is of to an amazing start, carrying through last year’s strong gains as the market continues its march higher.

While some stock valuations are getting stretched, there still seems to be some pockets of potential values, specifically in the health care and energy sectors.

Along with the higher prices, my dividend income continues to grow as well, and I remain well on pace for another year of double-digit income growth.

I hope this update finds you well, and happy investing!