The dividend rainy season starts each quarter when most companies announce quarterly reports and dividend payouts. The dividend rain increases in intensity and volume as more and more companies, announces their dividends, with many increasing their dividend payments.
The season normally ends with one or two lightning bolts of a few big dividend increases and payments. In this post, I will show you what my dividend rain is made of.
If you look closely at the above picture, you will see there is an important information hidden in my dividend rain animation. It's the chart of annual dividend growth data for each stock that I own in my portfolio.
The chart shows five years worth of dividend growth for each company. The companies that have increased the dividend most are concentrated on the left side of the chart. This is where I get most of my dividend rain as I like to invest more in companies that pay growing dividends each year and have the highest dividend growth rate.
While the ones that have tiny dividend growth are shown on the right side of the chart. As you can see, there is hardly any rain on the right side. It doesn't mean they are bad stocks, they just don't grow dividends as much as the other stocks, but they tend to have higher current yields. Most utility and telecom stocks fall into this category.
Dividend growth is the cornerstone of my investment strategy, as it helps me increase my dividend cash flow in retirement without requiring a whole lot of new capital. Also, companies that increase dividends regularly, generally have a much sound balance sheets and thriving businesses than the ones that don't pay or increase dividends regularly.
History has shown, high dividend growth correlates to higher stock price appreciation over time. It makes sense since dividend growth can only happen if earnings and cash flows are growing as well. Growing earnings will make the stock price go higher.
To see which companies have the highest dividend growth, let's look at them by sector.
|Click at the chart to make it bigger|
The Consumer Discretionary sector has some of the most consistently growing dividends, despite the retail turmoil.
All three of my stocks (VFC, TGT, and KSS) have double or high single digit dividend growth for the past five years. VFC is a clear winner in both dividend growth and price appreciation with TGT and KSS not too far behind.
|Cons. Discretionary Dividend Growth vs. Dividend Yield|
If I were to invest more money in the energy sector, I would put new money in either VLO or ENB or maybe both.
CVX can barely keep the dividend growth streak going to keep its dividend aristocrat status intact. I'm thinking about divesting after ex-div date and using the proceeds to buy more of ENB and VLO.
|Energy Dividend Growth vs. Dividend Yield|
Shareholders in BA, CMI, and LMT have not only done very well in dividend growth, but have also enjoyed double digit price appreciation.
The current yields in this sector are relatively low, but the dividend growth and price appreciation have far exceeded investor's expectations in total returns.
|Industrials Dividend Growth vs. Dividend Yield|
Four out of five of my technology stocks have stellar dividend growth with QCOM the winner and CSCO and MSFT right behind it.
INTC is the lagger in this group; however, the stock price has appreciated considerably higher recently. It is also one of my oldest stocks with an unrealized capital gains of 221% (as of today's stock price). So, I'm not complaining!
|Technology Dividend Growth vs. Dividend Yield|
Both T and VZ have similar 2-3% annual dividend growth rate, but have a current dividend yield in upwards of 5-6%.
D is the clear winner in utilities with an average 8% dividend growth per year.
Whereas PPL is falling behind in dividend growth, it has recently started to grow its dividend by 4% and management has promised to keep increasing it by 4% for the next few years.
|Telecoms and Utilities Dividend Growth vs. Dividend Yield|
There are always outliers in each sector and why I like to chart out all my dividend growth stocks by sector. It helps me see how each stock's dividend growth is doing relative to other stocks in the sector. I then decide where I should be investing next or even divesting in the case of slowing dividend growth.
Hope you enjoyed reading or at least looking at this post, as always I appreciate any comments or feedback.
May the Dividend Rain continue forever and ever for all of us DGI'ers. Happy Investing!!!
Disclaimer: Author of this article is not a licensed/registered financial or investment adviser and does not provide investment advice. Any mention of stock names/tickers in this article or website is not a recommendation to buy or sell. Please do your own due diligence before buying any stocks. This article is for informational and entertainment purposes only. Full disclaimer can be read here: Full Disclaimer