Dividend Increases – Feb 2022

We are living in interesting times. While I would normally refrain from talking about politics on this blog, some news items are just hard not to talk about. News just broke out today about Russia’s invasion of Ukraine. I sincerely hope and pray for the families in Ukraine and the other affected areas.

Towards the end of the day, I wanted to take a quick peek at what Mr. Market’s reaction to this news was like. I was surprised to see that S&P500 end up 1.5% higher than the start of the day! This just confirms that it is almost impossible to rationally predict how the market is going to react to anything. And this is exactly why I stick to dividend growth investing. I stand a chance to rationally predict the outcome of the dividends paid out by the companies I am invested in. But relying on capital appreciation is a bit of a lottery.

Lets talk about something a little more positive though. With earnings season in full swing, this was also the time for dividend increase announcements. And I had a few of them to report here:

  • T. Rowe Price (ticker: TROW) : TROW stock is getting hammered since the start of the year. It has seen a drop of nearly 26% since mid January. One of TROW’s peers, BlackRock (ticker: BLK), a stock that I do NOT own, is also seeing a similar drop in the same time frame. A did a quick peek of the fundamentals of TROW and, AFAICT, nothing with the company itself has changed. When I looked through the earnings call transcript, I did see one comment from the CEO Rob Sharps: “It was a challenging year for net flows with redemptions concentrated in U.S. equity growth portfolios, partly driven by client rebalancing after a period of robust returns.” The analysts and Mr. Market seem to have hung onto that comment. From what I can tell, this is a well run company with extremely good margins and no debt. And management was not concerned with the stock price drop either. They announced a 11.1% increase to their quarterly dividend. This marks the 36th consecutive year of annual dividend increases since their IPO, quite outstanding! The stock is currently trading at a FWD price to earnings ratio of 11.54 with a dividend yield of 3.38%.
  • 3M (ticker: MMM): 3M had a fairly decent quarterly earnings release. But the stock has got hammered since the start of the year like TROW, seeing a drop of nearly 20%. In this case though, there is a legitimate concern. 3M recently lost a lawsuit around defective earplugs sold to the US military. 3M also has a lot of debt on their balance sheet and management has been focusing on paying that off (as they should). In the midst of all this, the board announced a 1 cent increase to their quarterly, similar to last year. This naturally made a lot of investors grumpy. While I am not super happy about this situation, I am still reasonably confident about this company’s long-term future. But having said that, I will be keeping a close eye on the management’s actions in the coming few quarters and decide accordingly. The stock is currently trading at a FWD price to earnings ratio of 13.87 with a phenomenal starting dividend yield of 4.06%.
  • NextEra Energy (ticker: NEE): NEE is another one of these stocks that has seen a significant drop of nearly 19% from its highs late last year. The only reason I could attribute to the stock drop was the leadership changes happening within the company, with the previous CEO Jim Robo stepping down expressing a desire to retire after a decade long tenure. He is now replaced by John Ketchum, who was previously CFO. While that is ongoing, I think the fundamentals of the company are still intact and they expect a double-digit earnings growth and nearly 8% profit growth for the rest of the year till 2025. The board announced a nice 10% hike to their quarterly dividend. The stock is currently trading at the FWD price to earnings ratio of 25.86 and with a decent starting dividend yield 2.35%.
  • Whirlpool Corp. (ticker: WHR): Whirlpool is one of my recent entries in my portfolio after having been on the research watchlist for a long time. I finally pulled the trigger a few months back. The corporation boasts of some strong brands under its umbrella. The company has clearly been a beneficiary of the work-from-home trends introduced due to COVID. However, from what I researched, the profit margins, more specifically the ongoing EBIT margin (this is the metric that the management likes to cite in their presentations) have been improving from below 2% in 2008 after the GFC to about 6% before COVID news hit us. Since then the margins have improved to nearly 8% in 2021. I also like that the management has been very shareholder focused by aggressively buying back shares and also dividend increases. This last increase of 25% was therefore not all that surprising. The stock is trading at a FWD price to earnings ratio of 7.17 with a solid starting dividend yield of 3.54%.
  • Church and Dwight (ticker: CHD): CHD is within the bond-like category in my portfolio. Good solid brands like Arm and Hammer, Oxiclean, Trojan etc. I think these are staples for any household and they are not going anywhere in the next decade. The board announced a 4% quarterly dividend increase. The company has paid a quarterly dividend for nearly 121 years! Quite staggering! While the dividend increase itself is disappointing considering the current inflation levels, I understand caution on the part of the management considering the economic environment we are in with frequent supply chain issues and pricing challenges with retailers. The stock is currently trading at a FWD price to earnings ratio of 30.03 with a lousy starting dividend yield of 1.09%.
  • Intel Corp. (ticker: INTC): Another recent entry into my portfolio, INTC reported its fourth quarterly earnings recently and announced a 5% hike to their quarterly dividend. CEO Pat Gelsinger reiterated the focus towards delivering on their IDM 2.0 strategy. Mr. Market, however, decided to focus solely on the gross margin contraction of 3.2% and the stock tumbled. The stock is currently trading at a FWD price to earnings ratio of 12.85 with a solid starting dividend yield of 3.27%.
  • Home Depot (ticker: HD): HD delivered a strong quarter once again and at the same time announced a 15% hike to their quarterly dividend, making this their 140th consecutive quarter where they have paid out a cash dividend. This dividend increase surprised me as I was expected a hike closer to around 9-10%. Immediately after the release, the stock dropped an astonishing 9% because management forecasted that they expect slower growth and thinner margins in the coming year. The stock is currently trading at a FWD price to earnings of 19.25 with a nice starting dividend yield of 2.4%.
  • Pepsi Co. (ticker: PEP): I reserved the last spot for the newest entry into the Dividend King, PepsiCo announced a 7% dividend increase recently after a strong quarter. PEP is one my core holdings and it is a darling of the dividend investing community for a reason. The stock is currently trading a FWD price to earnings ratio of 24.87 with a decent dividend yield of 2.55%.

So there ya go. Those were the dividend increase announcements that I received since the start of the year. Some of these were along expected lines, some very surprising in a good way and some very disappointing. But I will take them which way they come!

Do you own any of these companies? What increases have you received so far this year? Let me know in the comments below!

PS: You can also connect with me on Twitter @LifeWDividends.

Frequently Asked Questions – About Me

My interactions with the dividend growth investing community have resulted in a few questions that I have had to answer lot more frequently than others. I thought it would be a good idea to document them here for future reference.

FAQ #1: Who are you? What is your name?

The About Me section of this blog is intentionally vague. For instance, I have not given a whole lot of details about me. For instance, my name. Why? Being able share my monthly income updates on the internet is a luxury. But while I do that with full transparency, including my dividend portfolio holdings, I do not want to reveal my real identity because this is the internet and information can get misused. A lot of people that I interacted with found this odd. Their common gripe was, “Well, what do you I call you then? Life With Dividends? LWD? I generally like to call people by their names, this seems odd”. I get it. But if you must, you can refer to me as LWD or Life With Dividends. Perfectly happy with that.

FAQ #2: Why aren’t you more active on social media? I hardly you see on Twitter/<your favorite social media platform here>

I want to limit my social media presence because (a) I honestly do not have the time for it, and (b) I do not find the process very rewarding. (b) is something that I have begun to have a change of heart, especially with Twitter. Twitter can be a powerful medium depending on the people you are following and you get to learn. But I am seeing some patterns that plague the other social media platforms. I touched upon this aspect in my last post, where sometimes I find folks posting tweets to simply gain some comments, likes, seemingly to improve their “visibility”/”clout” on the medium. This is a pattern that I first started seeing on Facebook and now also plagues other platforms like Instagram and YouTube.

The YouTube financial space is migraine-inducing with folks trying to post eye-catching, click-baity thumbnails with facial expressions etc. Their desperation for new subscribers and comments is forcing them to stop talking about “boring stuff” like “dividend growth investing” and promote the latest fad instead. I understand the motivation to make some side income through these mediums, but this is just counter-productive for everyone involved.

I honestly do not care whatsoever about earning income through side-hustles. I would much rather focus my attention towards my regular day-job and be kick-ass at what I do there. The other major half of my time is for my family. And whatever else I have is for my personal interests such as : blogging about dividend growth investing. If I burn myself out in the pursuit of earning income through side-hustles, it will result in compromising my primarily responsibilities, something which I simply cannot afford to do.

FAQ #3: But why blog? That’s so old-school. You should instead start a podcast or YouTube channel

Yes, I contemplated this. But I decided to stick with blogging for some good reasons: (a) I have been a blogger previously. I enjoy this medium to communicate because it helps me articulate better and get my thoughts across more clearly. Writing somehow reinforces my own thought process. (b) I ditched the idea of creating a YouTube channel for the reasons mentioned in the response to FAQ #2. I want some independence in terms of content that I am able to write and publish and do not want a police like the YouTube algorithm governing what is publishable. WordPress, thankfully, does not have these downsides. (c) I thought about launching a podcast, but then my “free” hours are at odd times, after the kid has gone to bed, and cannot afford to create a lot of noise. Writing seemed to fit well with these constraints. Podcast, not so much.

In general though, the world has started to lose patience all too quickly. We prefer short-term for everything: micro-blogging through Twitter, TikTok, YouTube shorts etc. for v-logging, and those habits are also prevalent in investing. I tend to prefer long-term: reading books, reading memos and shareholder letters from top-notch investors etc. Does that make me old-school? I honestly DGAF.

FAQ #4: What got you into dividend growth investing?

Funny story. It was purely accidental. I come from a family background where nobody ever invested anything in the stock market. So I was a complete dud on that front. After graduating from college and starting a job, I earned a lot of RSUs (restricted stock units) through my employer. I was also enrolled in the company’s employee stock purchase plan (ESPP). My company paid out a quarterly dividend. Not much. It was just a token amount. But overtime, through DRIPping, this turned out to be some serious cash. This was a “light bulb” moment for me. What if I could invest money in some companies that did the same and create a parallel “income stream” for myself to supplement my day job. I got to research this idea a little bit and got exposed to the world of dividend growth investing. I had honestly not even imagined that there was a whole community dedicated to this type of investing. I started investing for dividends initially through ETFs around the 2017 time frame and have now gained enough confidence to invest through individual stock picks.

RSUs and ESPPs are a great way to introduce yourself to investing, if you have no background or prior experience with it. You can also use it as a medium to learn more about your own company’s financial health, asking questions during your company meetings etc.

So there you go. If you have more questions, let me know. I am genuinely interested in responding and interacting with each and everyone of my readers.

Until next time…cheers!

Monthly Income Update – January 2022

My fellow investor friends and readers, I have been on radio silence for the last couple of weeks. There are a couple of reasons. My extended family were continuing to grapple with some health issues which are now, thankfully, progressing well towards recovery. The second reason is weather. My nick of the woods has experienced a couple of winter storms in the last few weeks. The more recent one resulted in school closures, power outages etc. The city that I currently stay at does not typically see this kind of weather. When we had a similar winter storm last year, we saw record snowfall, something which the city has not seen in over 100 years. To give you some idea as to how bad the situation was: last year’s winter storm left me and my family without drinking water and power for nearly 4-5 days. Roads were blocked due to heavy snowfall, grocery stores were short on stocks because people were panic-buying and there was no gas at the gas stations because of lack of supply. The winter storm also destroyed my gas water heater and I had a cracked window. Several houses in the neighborhood were without water even after supply was restored because of burst water pipes on the outside of the homes due to winter freeze.

All of this was a nightmarish experience. So this time around we were well-prepared and thankfully able to weather the storm much better.

And while all of this was going on, January was seeing some crazy market swings with the S&P500 dipping the most since March of 2020 when news of the pandemic first hit us. The high-flying growth stocks, especially in the tech sector, were getting crucified. We are also in the midst of an earnings season, with so much activity around some of the holdings in my portfolio. I am yet to digest all of this, but initial quick readings show that my holdings are doing just fine.

While I was briefly on Twitter, I was seeing several folks with tweets that could be summarized as “the market has gone red, BUY THE DIP!”. So naturally, I took the opportunity to quickly scan my portfolio and see if there were any such opportunities. And while there were some interesting opportunities, it was certainly not the “market crash like” moment that it was being touted as. I really enjoy interacting with fellow investor folks on Twitter, but honestly, there are also times when I find logging on Twitter to be incredibly distracting and sometimes downright annoying.

Here is an example of a tweet:

I get the need to want to “engage with the fintwit community”, building your follower base, and wanting to show that you are active etc. but honestly what is the point of tweets such as these? And we keep seeing these over and over and over again from multiple folks. It can be mind-numbing at times..

Ok where was I? Oh yes….this is supposed to be a monthly income update, and the first one of the year! So lets get right into it.

Dividend Income Received

Company/ETF (ticker)Amount
1.Pepsi Co. (PEP)$8.65
2.JP Morgan Chase (JPM)$9.05
3.Realty Income (O)$11.33
4.CareTrust REIT (CTRE)$6.2
5.Digital Realty (DLR)$22.29
6.STAG Industrial (STAG)$3.44
Total$60.96

So a total of $60.96 earned through dividends this month, with DLR being the highest contributor. In addition to this, I also earned an additional income of $84.64 through options trading by selling covered calls on stock that I had earned through RSUs through my employer. This puts the grand total of income through investments at $145.60. My income received from January of 2021 was $13.25. So this is some appreciable YoY growth.

Buys/Sells during this month

Since it is the first month of the new year, a large portion of my available capital went towards funding my retirement accounts i.e. mine and my wife’s Roth IRAs. I am already setup to also max out my health savings account and 401(k) accounts at this time. The remaining capital was deployed towards the following buys:

  • TROW : T Rowe Price Group saw an appreciable stock price drop during this last month. If we extend this time frame to the last 6 months, the stock has dropped by almost 30%. What is interesting is that none of the fundamentals, AFAICT, have changed. The earnings were decent and assets under management continues to grow. I will gladly accept what Mr. Market is offering right now.
  • Small tranches of MSFT, V and TXN: During mid-January, when pretty much all tech stocks were being crushed, MSFT dropped below $280. While this was no-where near my estimated fair value, I took this opportunity to add to my position. This is a phenomenal company and I am prepared to buy it at these prices. Similar story with Visa. All that nonsense of Amazon stopping to accept Visa credit cards in UK, created a fantastic buying opportunity back in Dec(?) of 2021. And while everyone was focusing on MSFT and its proposed acquisition of Activission Blizzard (ticker: ATVI), Texas Instruments (ticker: TXN) delivered another stellar quarter with double-digit growth.

Watchlist

I am taking a serious look at MMM and CLX. CLX delivered an underwhelming quarter, which drop in margins and a bleak outlook. The stock has dropped by almost 12% post its earnings release. None of this was particularly surprising. Inflation was bound to take its toll and also all the momentum gained during the pandemic is now vanishing as expected. However, this remains a solid business with superior brands that are not going to go away anytime soon.

Then we come to MMM, which was hit with a $110 mill federal jury verdict over its allegedly faulty CAEv2 earplugs. The stock plunged as a result. While this is indeed worrying news in the short-term, I am not as concerned about the company itself from a long-term perspective.

Summary

So another month is in the books. And if this month is any indication, we might be in for a volatile ride in the coming few months. Exciting times! 😀