Hello and welcome to the May edition of Dividend Growth Digest. I hope you all are enjoying the nice spring weather as much as I am.

The roller-coaster continues in the markets, as March’s swoon led to the biggest gains in the indices since 1987 during the month of April. This all despite the fact that the economy continues on lock-down, unemployment is growing at an unprecedented rate, and crude oil prices went negative for the first time in history.

Let’s hope the optimism of the market is a foreshadowing of what’s to come for the economy, and is an indication that we are winning the fight against COVID-19.

We’ve been keeping busy going on family hikes, bike rides, and walks during our time of social distancing. I’ve never seen the trails and parks so busy, which is great to see as families turn to other outlets with the suspension of organized group activities.

My boys are missing little league baseball, and I’m missing watching my Minnesota Twins, but we are grateful for the extra time we get together, and the opportunities for new family activities the pandemic is creating. We are doing our best to make lemonade out of the lemons the coronavirus is giving.

April Dividend Income

I always stress how dividend growth investing is a great method because it takes the focus off daily market swings and instead focuses on what income the portfolio is producing for you.

This is especially important during times of market volatility, because the dividends keep rolling in despite what’s happening in the market. Yes, there can be dividend cuts, but if you have a high quality, diversified portfolio, the trend will be higher even with the occasional cut.

That’s played out with my portfolio, where lost income from March dividend cuts by Cracker Barrel and Occidental Petroleum was quickly replaced as they were sold for other opportunities.

I’ve also received dividend increases from other positions, and dividend reinvestment continues to add more shares to the portfolio. Added all up, and my income continues to grow with each update.

Here is the portfolio’s income total for the month of April:

April income increased by 24.3% over 2019’s total, which was helped by add-on purchases in Automatic Data Processing $ADP, EOG Resources $EOG, and Watsco Inc. $WSO. There was also double-digit income growth in Comcast Corp $CMCSA, McCormick & Company $MKC, and Altria Group Inc. $MO.

The two laggards were STAG Industrial $STAG and Thor Industries $THO, which grew income by just 5.8% and 5.0%.

Thor’s dividend growth has been trending downward the last couple years, as it announced a 12.1% increase in 2017, a 5.4% increase in 2018, and just a 2.6% increase in 2019. That trend along with a junk S&P credit rating of just BB- led me to liquidate my position on April 9th. The proceeds from that sale went into additional shares of Watsco, and I was fortunately able to sneak in the purchase before the ex-div date, getting me a little extra income for the month.

All-in-all it was a great month, as the 24.3% income growth puts me on a great start to the quarter.

April Dividend Increase Announcements

April was also a good month for dividend announcements, with four increases and zero dividend cuts in the portfolio.

After Cracker Barrel and Occidental Petroleum announced cuts in March I was worried there could be more cuts coming, so it’s good to make it through a month without one.

American Water Works $AWK was the big increase for the month with a ten percent increase. The water utility doesn’t yield much and trades at a rich valuation, but its stability and consistency of growth is sure nice to have in the portfolio during times like these.

Kinder Morgan $KMI decided to be conservative with its increase, as it announced a 5% boost rather then the 25% increase it had previously guided for. While a bit disappointing, this wasn’t unexpected considering the current state of the oil & gas market.

While 5% certainly isn’t 25%, I’m still happy with the increase, as it will compound nicely with the 7%+ yield the stock is currently offering. It’s also reassuring about Kinder Morgan’s strength considering other energy companies like Royal Dutch Shell, Suncor, and Occidental were forced to cut their payouts.

Johnson & Johnson $JNJ had a solid increase of 6.3%, which when coupled with the 2.7% yield will provide income growth of around 9%. It’s easy to overlook another ho-hum increase from JNJ, but like with American Water works, the stability that this stock brings to the portfolio is welcome.

The Apple announcement was disappointing to me, as a company with its cash hoard and cash generation could be a little more generous with the dividend. The 6.5% dividend growth on a yield of just 1.12%, especially after just a 5.5% increase in 2018, isn’t going to cut it long-term. That said, the company has been one of my best performers, and any increase during the current market conditions are welcome.

IBM increased the payout by just a penny, an increase of 0.6%. This was expected but is still disappointing, and I’ve decided to sell my position after the stock goes ex-div on May 7th. I’ve held the stock for nearly seven years, and at this point I’m ready to move on.

Expected May Dividend Increases

May is typically a pretty slow month for increase announcements, and I expect it to remain that way in 2020.

I’m expecting just two companies to announce raises in May: Ameriprise Financial and Flowers Foods.

Ameriprise $AMP will announce earnings on April 6th, and typically announces a new dividend rate with that release. Analysts are currently expecting a 9% drop in earnings in 2020, so I’m not expecting much in the way of income growth from the company this year. My guess is a $0.03 increase to an even $1.00, although I wouldn’t be surprised if the company plays it conservative and goes with a token penny increase just to keep the dividend growth streak going.

The other expected announcement is from the baker Flowers Foods $FLO, which typically announces near the end of the month. With people staying at home and stocking up on groceries, Flowers is actually expected to grow earnings at a double-digit rate in 2020, which would be the highest growth rate since 2013.

That said, I think management might take the opportunity to lower the payout ratio a bit, so I’m expecting just a $0.01 increase from $0.19 to $0.20. This would drop the payout ratio back down to the ~75% level, while still giving a decent 5.3% raise.

Recent DGI Articles

The completion of Q1 meant it was time for another quarterly portfolio update on Seeking Alpha.

DGI For The DIY: Q1 Dividend Portfolio Update

That article highlighted my 9.6% income increase for the quarter, the thirteen dividend increases made in Q1, and what impact the dividend cuts from Cracker Barrel and Occidental Petroleum had. I also explained my decision to replace CBRL and OXY with Chevron, Exxon, and EOG Resources.

On this site I made a long-needed update to one of the “Education Center” pages, re-writing the post on portfolio weighting and its importance for your portfolio. My hope is that the post helps new investors understand the terminology, and gives them food for thought when building a new portfolio.

In other reading, I really enjoyed a three-part series put together by David Crosetti that explained the 80/20 Rule, and how to use it to your advantage both in investing and in life.

• The 80/20 Rule And How To Use It To Your Advantage
• The 80/20 Rule And How To Use It To Your Advantage (Part 2)
• The 80/20 Rule And How To Use It To Your Advantage (Part 3)

David has long-been one of my favorite contributors on Seeking Alpha, as I enjoy his old-school, no-nonsense approach to investing and life. It’s great to see him writing once again and adding to the discussion on the site.

One other article that I found helpful came from FerdiS, who published his Top-Ranked Dividend Growth Stocks In The Industrials Sector.

This article is full of great information including Value Line, Morningstar, Standard & Poor’s, and Simply Safe Dividends ratings, which FerdiS used to provide quality scores for thirty companies in the sector.

Definitely some helpful information for those looking for ideas!

Closing Thoughts

I am certainly enjoying the up days in the market, but I’m still not convinced that this rally is sustainable. After a week or so of earnings season, it seems most companies are withdrawing guidance as they are unsure of where things go from here.

While it seems the tech, utility, and healthcare sectors are faring well, I have concerns about REITs, consumer discretionary, energy, industrials, and financials. The portfolio has seen just two dividend cuts so far, but I wouldn’t be surprised if there are more coming in the next few months.

Disney, Royal Dutch Shell, and Suncor all cut dividends recently, and I’m sure they won’t be the last to do so.

That said, portfolio income continues to set monthly records, and I remain on pace to meet my 10% income growth goals for the year.

Stay safe, and happy investing!