As part of my monitoring process, I monitor dividend increases each month. This helps me monitor existing holdings, and also to identify companies for further research.
I usually focus my attention on companies that have managed to increase dividends for at least 10 years in a row. Of course, this is just the first step in the process. A long streak of dividend increases put a company on my list for further research. If the company can show promising fundamentals, and is available at a good price, only then would I consider buying its shares in the first place.
Over the past week, there were 58 companies in the US which increased dividends to shareholders. I reviewed the list, and narrowed it down to the companies with a 10 year track record of annual dividend increases. You can view the list of the 21 companies that both increased dividends last week and have a ten year track record of annual dividend increases:
Sadly, last week we witnessed a dividend cut from former dividend king V.F. Corporation (VFC). The company cut dividends by 41% to $0.30/share, which was the lowest dividend payment since 2014. Ironically, the company increased dividends in October 2022.
This dividend cut is an automatic sell signal for me. I sold VFC right after the announcement.
Earnings per share had been largely flat over the past decade for V.F. Corporation. This is why I had not found this position attractive enough to buy for over 6 years or so.
As a result, the number of Dividend Kings drops from 45 to 44 and the Dividend Aristocrats from 67 to 66.
While the occasional dividend cut will happen, it should not be a big deal for a diversified portfolio.
Imagine having a portfolio of 40 dividend kings. Each of them pays $100/year in dividend income, for a total of $4,000.
One company cuts dividends by 40%. That means dividend income from this company is cut to $60/year. This brings total dividend income for the portfolio to $3960.
While that 40% dividend cut looks big on the surface, it is barely noticeable at the portfolio level. Total portfolio income drops by only 1%. If the other 39 companies increased dividends by an average of 1.026%, total portfolio income would reach $4,000 again.
On average, annualized dividend growth has tended to exceed inflation. If the companies in the portfolio hiked dividends by an average of 5%, the total dividend income would still grow by about 4% at the portfolio level.
While it may seem obvious in hindsight that someone buying VF Corp in 2022/2023 probably should have seen a dividend cut on the horizon, It was not obvious in 2008/2013/2018. It may not be wise to sell at the first glimpse of "trouble", because that means sitting 100% in cash.
Telling which one is the future winner and which one is the future loser is hard.
Many claim to have forecasted VF Corp's dividend cut, unfortunately after the fact. But many also claimed that Exxon would cut dividends in 2020 as well, and they were wrong.
It's a bigger risk to sell a potential big winner early, than to experience a dividend cut however That's because the most dividends can fall by is 100% - a loss of $100 in this example. But a company growing dividends by 15%/year can take dividends from $100 to $400 in a decade.
Telling which one is the future winner and which one is the future loser is hard. Many claim to have forecasted VF Corp's dividend cut, unfortunately after the fact. But many also claimed that Exxon would cut dividends in 2020 as well, and they were wrong.
The most important factor is to have your own process that you stick to. A streak of annual dividend increases is helpful, but should be only the first part of the process to review companies, not an automatic signal for anything.
There are two British companies that raised dividends over the past week or two. I have discussed them in the past, so I wanted to continue monitoring them here.
British American Tobacco (BTI) increased quarterly dividends by 6% to 57.72 pence/share. This is the 26th consecutive annual dividend increase for this international dividend aristocrat. The stock yields 7.60%.
Diageo (DEO) increased interim dividends by 5% to 30.83 pence/share. It's likely that they'd hike the final dividend by 5% in a few months to 49.16 pence/share as well. Diageo pays dividends twice per year, and has split it in a roughly 40:60 ratio.
This international dividend aristocrat has increased dividends since 1998. The stock yields 2.23%.
Thank you for reading!
Relevant Articles:
- 23 Companies Rewarding Shareholders With Raises
- 29 Companies Rewarding Shareholders With Raises
