Friday, December 23, 2016

Dividend Growth Investing at Work - The Freeze Has Thawed

Something I love about dividend growth investing is that each month I get to hear about companies I own deciding to pay me more money in dividends.  Just for owning a small portion of said companies.  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  That's dividend growth investing at work!  I mean who doesn't like getting a raise for doing nothing?  Dividend growth investing is far from a get rich quick investment strategy, rather you need to remain focused on the long term goal to be successful.

Ventas announced a solid increase to their dividend payment this past Friday and one more of my holdings snuck one in as well.  This one was a bit of a surprise for me because they had previously announced in late 2015 that they would not increase the dividend in 2016.  The company in question is General Electric (GE) and if you recall they were not going to raise their dividend in 2016 opting for higher share buybacks after the various sales of GE Capital were completed.  

This past Friday, General Electric's Board of Directors announced an increase in their dividend to $0.24 from the prior payment of $0.23.  That's a decent 4.4% increase to their dividend.  Shares currently yield 3.02%.  

Since I own 171.205 shares of General Electric in my FI Portfolio this raise increased my forward 12-month dividends by $6.85.  This is the 2nd dividend increase I've received from General Electric since initiating a position in 2013.  Despite just 2 raises over the last 3 years the organic dividend growth from General Electric comes in at over 26%.  According to USInflationCalculator the total rate of inflation over the same period is just 3.8%.  So even though there was a pause in dividend growth the cumulative rate of growth is still well above the drag of inflation.



A larger version of the chart can be found here.

General Electric had a promising dividend growth history with dividends rising every year since at least 1993.  However, that came to an end during the financial crisis of 2008/09 since General Electric was overexposed the credit markets.  Since then General Electric had shown consistent increases and achieved Dividend Challenger status with 5 consecutive years of raises although this most recent streak came to an end with 2016's total payments being the same as 2015's.  


dividend growth investing, dividend growth rates, General Electric, GE, industrial
General Electric (GE) Annual Dividend and Rolling Dividend Growth Rates Since 1993
An interactive graphical version of the previous chart can be found here.


Despite starting a new dividend growth streak coming out of the financial crisis, General Electric has still yet to surpass the pre-recession payout of $1.24 hit in 2008.  With the payout ratio near managements' target of 45-50%, future dividend growth will need to come from true growth of the company rather than further payout ratio expansion.

Wrap Up

My forward dividends increased by $6.85 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.89% this raise is like I invested an extra $237 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

For a dividend growth investor there's not much better than hearing news of a dividend increase.  So far this year I've received 49 increases from 40 companies increasing my forward 12-month dividends by $279.93.  General Electric's raise technically doesn't contribute to these totals since the higher dividend won't be paid until 2017.

My FI Portfolio's forward-12 month dividends increased to $5,578.62 and including my Loyal3 portfolio's forward dividends of $66.36 brings my total taxable account forward dividends to $5,644.98.  My Roth IRA's forward 12-month dividends remain at $241.75.

Previous Raises During December:

Ventas, Inc. (VTR)

Do you own shares of General Electric?  Does a dividend freeze mean an automatic sell for you or are you lenient with freezes as long as no cut follows?

Please share your thoughts below.

This article was written by Passive Income Pursuit. If you enjoyed this article, please consider subscribing to my feed.

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