I like purchasing companies, which have dependable revenues and earnings. Companies that manage to generate dependable earnings throughout different phases of the economic cycle, and also grow them over time, have an especially important place in the portfolios of the dividend investors. This is because stable earnings reduce the likelihood of a dividend cut when things get tough. Since my goal is to one day live off dividends, the primary goal is to find those companies whose dividend streams are reliable, and can withstand short-term fluctuations in earnings. Another important factor is the ability of those companies to grow those earnings over time. Rising earnings per share are the secret ingredient behind future dividend growth. Companies that usually manage to keep growing earnings for many years tend to have some type of competitive advantage, and usually are in an industry where they provide a product or service that is well differentiated, and not commoditized.
Over the past week, I made two additional purchases, other than the Exxon Mobil one I previously discussed.
Diageo plc (DEO) manufactures and distributes premium drinks such as Johnnie Walker, Crown Royal, Buchanan’s, J&B, Baileys, Smirnoff, Captain Morgan, Guinness, Shui Jing Fang, and Yenì Raki.. The company has raised dividends for 15 years in a row. In the past decade, the company has managed to boost dividends by 5.80%/year. Currently, the stock is selling for 18.70 times forward earnings and yields 2.70%. Check my analysis of Diageo.
United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. The company has raised dividends for 22 years in a row. In the past decade, the company has managed to boost dividends by 12.90%/year. Currently, this dividend achiever is selling for 17.10 times forward earnings and yields 2.10%. Check my analysis of United Technologies.
The nice thing was that the day of my scheduled purchase of United Technologies, the company also announced that it was raising its quarterly dividend by 8.50% to 64 cents/share. For Diageo, the interim dividend was raised in late January by 9% in British Pounds. While the interim dividend is usually 40% of the total annual dividend that will be paid, the growth in interim and final dividends for Diageo usually follow very similar rates of change.
A few other companies I own, which raised dividends last week include Archer Daniels Midland (ADM) and Dr. Pepper Snapple (DPS).
Archer Daniels Midland (ADM) raised its quarterly dividend by 16.70% to 28 cents/share. This marked the 40th consecutive annual dividend increase for this dividend champion.The stock yields 2.30%, and sells at 14 times forward earnings. I would probably consider adding to this stock on dips below $44.80/share. Check my analysis of ADM.
Dr. Pepper Snapple (DPS) raised its quarterly dividend by 17.10% to 48 cents/share. This marked the sixth consecutive annual dividend increase for the company. The stock yields 2.50%, but is overvalued at 21.40 times forward earnings. I would only consider the stock on dips below $73. Check my analysis of Dr. Pepper.
Since the purpose of my investment strategy is to generate enough dividends to cover my expenses, I receive a validation of my research any time a company I have purchased raises its dividend. Of course, it doesn't hurt that dividends represent cold hard cash deposited in my brokerage accounts, for which I didn't have to work 60 hours/week putting cover sheets on TPS reports. Dividends are the return on investment, which is always positive, almost always go up, and once paid to you can never be taken away from you. Any time a dividend payment is paid to me, it also serves as a kind of positive reinforcement that helps me reiterate to myself that I am a partial business owner of tens of companies in a variety of industries that have global operations and employ millions of workers.
Full Disclosure: Long DEO, UTX, XOM, DPS, ADM
Relevant Articles:
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- Six Dividend Investments I Made Last Week
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