I spent some time this morning updating my dividend spreadsheet where I tally my passive income. I track each company individually along with the annual collective totals. While adding up all of the dividends received is nice, one of my other little joys from this activity is actually taking note of the dividend growth each company produces.
As I’ve said before, the strength of the Dividend Growth Investing (DGI) strategy is that gains come in three areas:
1) Dividend payments made from companies directly to the investor. This is the cash flow that pays the investor who simply passively owns shares. This is your reward for being an investor.
2) Dividend growth driven internally from profits made by the company. In other words, as the company makes more money, the investor makes more money as well.
3) Capital gains from an increase in the share price.
The first two sources of gains are the most significant, in my view. While most people chase capital gains, the problem is that at some point the investor will be forced to sell shares if they want to reap a profit from companies that forego a dividend. That ultimately means that the investor’s interests are not aligned with the company they own shares in. Think about it: If at some point down the road you will need to end or lessen your relationship with the company you hold stock in just to benefit from the increased share price, this means you will someday own less of the company. If someday you’re going to own less of the company, then how can you truly be thinking in the extremely long term about its prospects?
Holding stock for the dividend means I get to benefit all the way along through the investing journey without ever looking for the opportunity to “get out”. In fact, my ideal holding period as a stock market investor is forever. I genuinely never want to sell shares of a company I purchase. I would rather continue receiving increased dividend payments on a regular basis for the rest of my life.
Dividend Growth in 2017
The beginning of the year is off to a healthy start in terms of dividend growth. In slightly less than the first four months of the year, the following companies in my portfolio have demonstrated growth:
| Company | Dividend Growth |
|---|---|
| BCE Inc. (BCE) | 5.13% |
| Canadian Imperial Bank of Commerce (CM) | 2.48% (Q1) + 2.42% (Q2) |
| Canadian National Railway Company (CNR) | 10% |
| Canadian Utilities Limited (CU) | 10% |
| The Coca-Cola Company (KO) | 5.71% |
| TELUS Corporation (T) | 4.35% |
| Toronto-Dominion Bank (TD) | 9.09% |
| Waste Management Inc. (WM) | 3.66% |
| Wal-Mart Stores Inc. (WMT) | 2.00% |
What we see here is a real mix of increases averaging out to the upper single digits level of growth across all of the names listed. There were no real surprises from my perspective as far as these companies are concerned. CU was a little higher than I might have expected while CNR was a bit lower. WMT has been keeping its increases incredibly low for the past few years. I suspect it is doing so in order to finance its online growth–which makes plenty of sense to me.
I still have several dividend announcements coming up soon that I’ll be eagerly anticipating. Johnson & Johnson (JNJ) is one I’ll be looking for around 6-8% from in the near future, although there is never any guarantee.
Conclusion
While dividends and dividend growth can be financed in many ways over the short run, they are a true litmus of a company’s profitability over the long term. At some point, the bottom line is that if a company intends to keep paying shareholders in a meaningful way, the business itself needs to be doing well. For this reason among others, dividend growth is one of my favourite signals that a company is worth owning.
I hope you enjoyed this quick glimpse at the dividend growth my portfolio has seen since the beginning of 2017.
Thank you for reading.
– Ryan
How has your dividend growth been doing lately?
Full Disclosure: Long BCE, CM, CNR, CU, KO, JNJ, T, TD, WM
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