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Companies That Are Raising Dividends

April 22, 2014 | About:

As a dividend growth investor, one of the primary objectives I seek is passive dividend income from my investments that increases over the rate of inflation, annually. It’s always wonderful news when companies decide to reward loyal, long-term shareholders with a dividend raise. A dividend raise typically means operations are doing well, and management is confident enough about cash flow to give shareholders a raise. All in all, it’s a very good sign.

I try to keep my eyes peeled for dividend raises from companies I’m invested in, as well as companies on my watch list. Some recent dividend increases include:

CSX Corporation (CSX) recently gave shareholders a raise, increasing its quarterly dividend by 6.7%. The new dividend of $0.16 per share is a $0.01 increase over the old rate of $0.15. This marks eight years of consecutive dividend raises for the railroad company. I’m a fan of railroads in general due to the huge competitive advantages they have since it’s nigh impossible to just go out and start a new railroad business tomorrow; the barriers to entry on building new track are just too high. This was a prudent, if conservative, raise by management, but the payout ratio remains low at 36.2%, which gives management flexibility in multiple business cycles. The yield, however, is a bit low as well here at 2.27%.

The Southern Company (SO) just boosted its quarterly per share dividend by 3.5% – up from $0.5075 to the new rate of $0.5250. The new yield on shares is now 4.65%, which is rather solid in today’s market. SO has been increasing its dividend for 13 consecutive years now, which is certainly wonderful. However, the payout ratio exceeds 100% from both earnings and free cash flow. Factoring that in with the rather low dividend growth rate (3.8% over the last 10 years) means I’m on the sidelines here.

Kinder Morgan Inc. (KMI) keeps on rewarding shareholders. They just increased their dividend by 2.4%, upping the quarterly payout a penny from $0.41 to $0.42 per share. There’s a lot of controversy surrounding KMI lately; the only controversy for me is where to reinvest my newly upped income! I’m a big fan of KMI at these levels. Where else can you get a 5.02% yield backed by high-single-digit dividend growth. KMI is increasing the dividend almost every quarter based on its historical track record, and there’s not a lot to dislike here. They’ve now tripled their quarterly dividend since going public in 2011. Yes, tripled. And with a stable base of pipeline assets and diversified energy operations, as well as management firmly in the corner of shareholders – CEO Richard Kinder earns $1/year in compensation, but makes over $400 million per year in dividends from his KMI holdings – I’m confident KMI will continue growing its dividend.

Omega Healthcare Investors Inc. (OHI) just increased its quarterly dividend by 2%. The new rate of $0.50 quarterly per share is a nice improvement over the old payout of $0.49. However, what makes this impressive is that this is the seventh straight quarterly raise. Not seven straight years – seven straight quarters. And they have twelve consecutive years of dividend growth on top of that. The yield is very healthy here at 5.75%, and the growth is solid. I’m a shareholder, and a happy one at that.

The Procter & Gamble Company (PG) recently increased its dividend for the 58th consecutive year. The new quarterly per share dividend of $0.6436 is a 7% raise over the old payout of $0.6015. PG is the holy grail kind of stuff us dividend growth investors are after. You’ve got a stable of high-quality brands (25 $1 billion brands) that are sold all over the world. And they share their hefty bottom line with shareholders in the form of dividends. And they don’t stop there; they continue to raise that share of the profit pie year after year since the pie itself is expanding constantly. 58 years of dividend raises is not something that happens by accident. This is the result of a fantastic business model, growth in the underlying business, and prudent management. I consider PG a core holding for me, and while I don’t consider it a steal at today’s prices, one would likely never go wrong paying full price or slightly more for a company like PG. The yield on shares is now 3.16%.

Full Disclosure: Long KMI, OHI, PG

How about you? Own a piece of any of these companies? Happy with the raises?

Thanks for reading.

About the author:

Dividend Mantra
Trying to retire by 40 by investing in dividend growth stocks and living frugally, valuing time over money.

Visit Dividend Mantra's Website


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Comments

SixTwoSix
SixTwoSix - 3 months ago

Ive read a few of your articles.

Dividends are just a component of the total expected return. Not sure I get why such a focus on the dividend. Your goal as I see it should be to compound as high a rate as possible. Once you got the stash then I could see having a dividend portfolio.

Second thing is you own so many companies in your portfolio which IMO makes beating the S&P very difficult.

All the best.

Dividend Mantra
Dividend Mantra premium member - 3 months ago

SixTwoSix,

Thanks for stopping by.

Dividends are a component of total return, but a much larger one than you might expect. Per John Bogle (you know, the Vanguard founder), and a study he performed on the matter:

"An investment of $10,000 in the S&P 500 Index at its 1926 inception with all dividends reinvested would by the end of September 2007 have grown to approximately $33,100,000 (10.4% compounded). [Using the S&P 90 Stock Index before the 1957 debut of the S&P 500.] If dividends had not been reinvested, the value of that investment would have been just over $1,200,000 (6.1% compounded) – an amazing gap of $32 million. Over the past 81 years, then, reinvested dividend income accounted for approximately 95% of the compound long-term return earned by the companies in the S&P 500."

I could wax ecstatic about dividends and their benefits all day long, but since you mentioned total return I thought that was an appropriate quote.

As far as beating the S&P 500, I'm not interested in comparing myself to one index that has nothing to do with my goals:

http://www.dividendmantra.com/2013/12/why-i-dont-compare-my-portfolios/

Best wishes!

SixTwoSix
SixTwoSix - 3 months ago

D.M.

You can reinvest your capital appreciation too? You or J.B. are pointing out the effects of compounding and the power of not withdrawing dividends (could also have been gains) to your investment pool............. but it still only compounded at 10.4%.

The S&P is the know nothing, dont even bother getting out of bed competition. All investors are measured against it.

Look at it this way you probaly never would have invested in V, MA, or GOOG because of a missing dividend.

In theory at least, companies should pay out dividends if they cannot reinvest the funds within the company and earn a high return. Companies that are paying out a high ratio are essentially admitting this.

If this is your edge all the power to you.

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