Another New Position Paying Me A 5% Dividend

This week I bought my first 16 shares of Royal Bank of Canada (RY). I already own The Bank of Nova Scotia (BNS) in my portfolio but was eager to add another large Canadian bank, because of their track record that goes back for more than 100 years. Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD) have been on my buy list for a very long time. I’m more than happy that I finally pulled the trigger. 

RY is one of North America’s leading diversified financial services companies, providing personal and commercial banking, wealth management, insurance, investor services, and capital markets products and services on a global basis. This bank is the market leader across all key businesses in Canada. RY has more than 80,000 employees who serve more than 16 million personal, business, public sector, and institutional clients through offices in Canada, the United States, and more than 37 other countries. They are well diversified, from businesses and geographies to client segments. Founded in 1864, RY is the 11th largest bank worldwide and the 5th in North America, as measured by market capitalization.

Valuation

I hit the BUY button when the stock traded for a price of $60.19. This is equal to a P/E of 9 whereas the normal P/E ratio is just shy of 13. I think this is really a great deal. The price has made a swing back to the low 50’s in March and has already recovered with a nice 20%. At that time I bought other stocks on my buy list. At a price of $60, this still is a great opportunity. Look at the black line (price) in the FastGraphs picture below and how it always comes back to the blue line (normal P/E): regression to the mean. I’m confident I’ll eventually profit from Mr. Market’s manic depressive nature.

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Dividends

Every year since 1870, RY has been paying dividends. That’s 150 years, folks. Let that number sink in. It is a clear evidence of a strong and durable competitive advantage. In twenty years their quarterly dividend has gone up from $0.11 a share to more or less $0.80. Their dividend growth rate over twenty years is 12%. Over a period of three years their dividend growth rate is just above 3%. With a current quarterly dividend of $0.80 per share, this means my initial dividend yield is 5.10%. What a starter! The dividend in dollars depends on the USD/CAD rate. So the exact payment in dollars varies from quarter to quarter.

Payout Ratio

The increase in dividends is even more phenomenal given the fact that their payout ratio has only increased from 40% to 46% according to FastGraphs as you can see below. This percentage is right in the middle of their annual earnings which indicates they can withstand a large drop in earnings. I like that idea. During the last three years their payout ratio even dropped from 50% to 46%.

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Their goals for the future are in line with the historic records of RY. Their projected payout ratio has an upper limit of 50% according to their most recent investor presentation. I think this indicates that dividend increases during the handling and economic consequences of the coronacrisis will be in the low single digits. If RY stops increasing or even cuts its dividend during this COVID-19 pandemonium or aftermath, I’m okay with that. Because they’ll eventually come back stronger. I’ll buy even more shares of this company when their share price drops if they would announce a dividend suspense. So it’s possible this transaction requires patience and discipline to play out. But I think the scenario of a large dividend cut isn’t very likely.

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Credit Rating

RY is well-capitalized with a capital position way higher than required. RY has a common equity tier 1 (CET1) ratio, the measure of a bank’s capital strength, of 12% of risk-weighted assets (RWA). According to Basel III capital and liquidity rules, all banks must have a minimum CET1 to RWA ratio of 4.50% by 2019. This gives me confidence this 156-year old firm can resist the coronacrisis. RY have a high credit rating, also in comparison with their competitors.

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First Quarter Results

Their Q1 2020 results were in line with all growth figures mentioned before. Income numbers are up, ROE is extremely high and their CET1 ratio remains rock solid.

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We have to wait and see for the numbers of the second quarter as that quarter will contain the numbers of the paralyzed economic activities. Exactly how deep and long this downturn might be, is hard to see at this stage. Meanwhile I get paid a 5% dividend while my bank pays me a generous 0.02% on my savings account.

Did you buy a large Canadian bank lately?

Happy investing!

Starting 2020 with 43% YoY Dividend Growth

January is already in the books, folks. The dividend investing community collected their dividends of the first month of 2020. We’re all curious how things turned out and excited to write about our progress towards financial independence. Some dividend investors have already reported excellent growth numbers and new records. My dividend growth numbers YoY were staggering as I got paid $1,200 more in 2019 in comparison with 2018. Let’s see what my numbers are for January.

The Numbers

My total dividend income for January was $310.16. In this month I got several raises as compared to the dividend amounts in October 2019. There were also higher dividends, because I increased several positions during the last months of 2019. You can see the dividend growth numbers QoQ and YoY right below:

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This makes the total amount of dividend income for January $310.16, meaning we crushed the number of $300 with a solid YoY dividend growth of 43%. That’s a pretty good start of the year! The $300 in monthly dividend income seems to become a new baseline for 2020 after last year’s August ($331.12) and November ($353.43). I also like the double digit growth number of 43%. You can see that the QoQ increase is a small 9%. I’m working on this with my plan to buy high-growth dividend stocks in 2020. Here is the graph YTD:

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You can see I’ve come from less than $50 exactly three years ago to more than $300 as it stands today. That already looks like a track record of a quickly and steadily growing passive income. Sometimes I get impatient as I want the dividend amounts to grow faster and more meaningful in terms of absolute numbers. But I guess on a relative basis I should be more than confident. It’s good to look back every now and then to see the real change and accomplished steps as I tend to look beyond the small, incremental changes QoQ.

Transactions during January

The oil behemoths have been in the news lately after a sell-off in their shares due to disappointing Q3 numbers and consequences of the expanded spread of the coronavirus. The oil price of a barrel WTI or Brent has dropped with as much as 20% since the beginning of the year. The volatile stock prices of Chevron (CVX), Royal Dutch Shell (RDS), ExxonMobil (XOM) isn’t likely to be only a short-term event as LNG exports from the U.S. are uneconomical at these price levels. Many exporters have contracts at fixed, higher prices. Only a steep and long production cut could drive the oil price upwards, but that would lead almost certainly to a public reaction by the U.S. government adding more uncertainties to this market. With all these headwinds I’ll keep a close eye on the big oil players.

I already took advantage of the market volatility this month by buying 19 shares of ExxonMobil (XOM) for a price of $64.65. With this buy I added an extra $66.12 to my annual dividend income. The quarterly dividend is paid in the last month of every quarter which means a small boost of $16.53 in my lower dividend income months. I currently own 76 stocks for an average price of $74.21.

Looking Forward

My total dividend income YTD is, obviously, $310.16. Going forward, the key is to save as much as I can and make smart, sound investments based on cheapness and quality. Consistently, month after month, keeping the big picture in mind.

Thanks for reading.

Happy investing!

December, A 45% Growth YoY In Dividend Income To End 2019

With this blog post about my dividend income for December an amazing year of progress to financial independence comes to an end. It’s getting more excited each and every year. I will write a separate blog post about the year 2019 and my goals for 2020.

Income numbers December

The amount of dividend income for month 2019/12 was $191.35. Three companies paid me more than last quarter as a consequence of a raise or larger position. Here’s the breakdown:

Bank of America (BAC) – $7.02

BlackRock (BLK) – $13.20

Cummins (CMI) – $13.11

Johnson & Johnson (JNJ) – $7.60

3M (MMM) – $41.76

Norfolk Southern (NSC) – $5.64

Realty Income (O) – $3.86

Southern Company (SO) – $21.70

Stanley Black & Decker (SWK) – $8.28

Union Pacific (UNP) – $5.82

Wells Fargo (WFC) – $13.77

Exxon Mobil (XOM) – $49.59

Progress

My passive income for the month of September 2019 was $192.92 That means a decrease of 1% QoQ; The progress YoY is more meaningful; my dividend income for December last year was $131.95 so that’s an awesome increase of 45% YoY. Let’s look at the graph YTD:

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Buys In December

During this month I bought 20 shares of Simon Property Group (SPG) for a price of $145.98. You can read more about this purchase in this article. It still trades at an attractive valuation with a P/AFFO of 13.5 and a dividend yield of 5.78%.

Dividend Income FY 2019

Including this month I collected a nice FY $2,961.57. This means I closed this year with an increase of 65% YoY. WOW!

Thanks for stopping by and feel free to comment.

Happy investing!

Another Record Month Of Dividend Income, A 53% Growth YoY

The year 2019 has come to an end. This means we can draw up the balance. I think 2019 will turn out to be a year in which the snowball effect of compounding really took shape. But there are still two months of dividend income to report about on my blog: November and December. Let’s start with November. December will follow shortly.

Income numbers November

For this month my total amount of dividend income was $353.43. This is the highest amount of monthly dividend income so far. It seems we’re already heading towards a quarterly dividend of $400, after crushing the number of $300 only recently in August. We are steaming up!

Three companies paid me more than last quarter as a consequence of a raise or larger position. Here’s the breakdown:

Apple (AAPL) – $16.94

Abbvie (ABBV) – $64.20

CVS Caremark (CVS) – $17.00

Delta Air Lines (DAL) – $9.26

Realty Income (O) – $3.86

Omega Healthcare (OHI) – $67.00

Starbucks (SBUX) – $19.27

Tanger Factory Outlets (SKT) – $62.13

AT&T (T) – $85.68

Texas Instruments (TXN) – $8.10

This makes the total amount of dividend income for this month a nice $353.43. My dividend income in August 2019 was $331.12 so that’s an increase of 7% QoQ. My passive income for November 2018 was $230.73 so that’s a very welcome 53% YoY growth. This means another high double-digit growth number, I love it! You can see that four companies contribute a very large part to my dividend income. It’s clear I have to diversify more than I used to do: more companies and a more equal distribution. This will be one of my goals for 2020. Here is the graph that shows all monthly dividends YTD as compared to last year:

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Transactions during November

I didn’t buy any stocks in November, because I wanted some extra money to invest with towards the end of 2019.

Looking Forward

I earned $2,770.27 in dividend income YTD, which means I surpassed the FY 2018 dividend income of $1,793.09 with almost $1,000.

Thanks for for your time.

Happy investing!

 

The Latest Addition To My Dividend Growth Stock Portfolio

Last week I finally initiated a position in Simon Property Group (SPG). I’ve been watching this high-quality REIT closely but preferred to buy stocks of other companies during the last two years. Finally, it all came together: money burning in my pocket and pressure on SPG’s stock price which resulted in a high dividend yield and a compellingly attractive valuation. I think this is one of the only few low-risk, high-yield investment opportunities at the moment as the U.S. stock market continues to hit all-time highs.

The Business Sector

Sometimes a whole business sector faces challenges whether it’s a compliance issue, technological developments or fundamental questions about the business model. Some think this is the case with traditional retail. I don’t think a retail apocalypse is at hand and fears are overblown. Some REIT’s will just have a difficult time with struggling or bankrupt tenants and may cut their dividend because of a declining occupancy rate and their (increasing) debt load.

Why SPG Stands Out From The Rest

In their 2018 annual report we can read about their astounishing accomplishments:

“Through disciplined execution, our strategy has resulted in industry-leading results, year in and year out. Our Company has achieved growth and scale that few could have imagined possible and the following are just some of the impressive numbers to report over the last 25 years:
• Our annual funds from operations (“FFO”), an important industry measure, has grown from $150 million at the time of our IPO to more than $4.3 billion in 2018.
• We have increased the Company’s annual FFO generation by more than twenty- five times since our IPO.
• Total consolidated revenue has increased more than thirteen times from $424 million to approximately $5.7 billion.
• The gross market value of our portfolio has increased from $3.5 billion to more than $90 billion.
• From our IPO through year- end 2018, ownership of Simon Property Group (SPG) common stock provided a total return to shareholders of more than 2,750%, or a compound annual return of more than 14% compared to the S&P 500 compound annual return of 9% over the same period.”

Past results and averages are not the same as what the company will earn on the next dollar of capital it puts into the business. But it can be used as a guide especially for high-quality businesses or businesses run by high-quality management. Therefor I’m not too worried about the challenges of SPG. They’re able to gradually refinance their debt whether a recession sets in or not. And at low interest rates, because SPG is a S&P 500 A-rated company. They also have a very strong balance sheet with $7 billion in low-cost liquidity and $1.5 billion in retained cash flow. This gives SPG the ability to continuously invest in and improve their real estate portfolio, repay their debt, increase their dividend or even buyback shares. I believe the stock price has significantly come down without any real news with respect to the underlying business.

The Transaction

I bought 20 pieces of SPG at a price of $145.98. This means a P/AFFO slightly above 13. Their normal P/AFFO Ratio over 10 and 5 years is more or less 19. So I’m good on the valuation side. With purchasing SPG at this price I get a dividend yield of 5.75%. Their latest dividend raise was a small 2.4% from $2.05 to $2.10. SPG tends to increase their dividend twice a year.

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Their longer term dividend growth rate averages out to 10%. That’s very impressive! Their AFFO dividend payout ratio has only slightly increased from 67% to 72% over that same time frame. We can therefor conclude that the dividend is safely covered with funds from operations. During the Great Recession SPG lowered its dividend in 2009 and 2010 though. But over the last 10 years they’ve already managed to acquire the status of a Dividend Contender again. This shows what a quality business this is.

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There’s a fascinating text in the 2018 annual report of SPG about their dividend history. “We have paid more than $28 billion in dividends over our 25-year history as a public company, and at our current dividend rate, by the second quarter of 2019, we will have cumulatively paid more than $100.00 per share in dividends since our IPO. Especially considering that our IPO price was $22.25 per share—WOW!” That just sums it all up: WOW!

SPG is a high-quality REIT with a dividend yield of 5.75%, a payout ratio of 72% and a fortress-like balance sheet. With this buy I added $42 to my quarterly dividend income, which totals up to a FY $168. I’m very content with this new position. What’s not to like?

What did you buy lately? Please feel free to comment.

Happy investing!

 

 

October: A 72% Higher Dividend YoY!

Once again, I’m a bit behind with writing for this blog. Most of my time and energy went into my new job since October 1st. However, I’ve been watching the market closely during the last months. So with October, the last quarter sets in and we get a good idea of our annual progress in getting financial independent. It’s an exciting time to be a dividend growth investor. Valuations are through the roof and the most recent dividend growth numbers of many companies are lower than previous years. Once again, it all comes down to a thoughtful plan, sticking to it, and considering your progress towards attaining your goals. Let’s start right away!

The Numbers

My total dividend income for the month of October was $285.54. In this month I got several raises as compared to the dividend amounts in July. October included the usual small dividend increase of Realty Income (O), but also a 7% raise by Illinois Tool Works (ITW), a 12.5% higher dividend of JP Morgan (JPM), a 5% increase by Altria (MO) and a 2.6% dividend hike by Philip Morris (PM). My dividend income from my position in Altria (MO) also increased because of a larger position. This sums up to:

Bank of Nova Scotia (BNS) – $30.93

Iron Mountain (IRM) – $11.00

Illinois Tool Works (ITW) – $6.42

JP Morgan (JPM) – $5.40

Kimco Realty (KIM) – $70.00

Leggett & Platt (LEG) – $8.40

Altria (MO) – $81.48

Realty Income (O) – $3.86

Philip Morris (PM) – $31.59

Ventas (VTR) – $36.46

This makes the total amount of dividend income for October a nice $285.54. Just slightly below the $300 threshold. My dividend income for July 2019 was $275.02 so that’s an increase of a very small 4% QoQ. The total dividend for October 2018 was $166.05, so that’s an increase of 72% YoY. Just like I want to see it! Here is the graph YTD:

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Transactions during October

This month I sold my small position in Emerson Electric (EMR). This led to a 51% gain excluding a 4% annual dividend over 4 years. Let’s say, a gain of 65% in total. The dividend increases have been disappointing over this time frame. I think the company doensn’t have an unique position compared to their competitors. With this money I increased my position in Tanger Factory Outlets (SKT) with 29 stocks for $16.22 per share. I also bought an additional 14 stocks of Altria (MO) for a trading price of $46.12.

Looking Forward

My total dividend income YTD is $2,416.79. I consider this an unreal number compared to where I came from three years ago. The snowball is getting shape here. I would love to close this year passing the number of $3,000. How awesome would that be!

Please let me know which stocks you bought and whether October was a good month in terms of dividend income numbers. Thanks for reading.

Happy investing!

October 2019 Buy Candidates

The Q3 reporting season will really get underway in mid-October. I’m always looking forward to this exciting time. First of all, you get an update on the business performance of the companies you own. Secondly, there’s always a good business underperforming relative to the short-term oriented market expectations which create attractive buy opportunities.

Last year, there was a fantastic opportunity to pick up a great company like Starbucks (SBUX) for a price around $50, which was equal to a P/E of 20 and a dividend yield of 2.70% at that time. Right now, it trades around $90, a P/E of 31 and a dvidend yield of 1.60%. I was able to benefit from the opportuinty in October last year, because I had some dry powder to invest in SBUX.

There’s no doubt about the strength of the U.S. economy at the moment, especially relative to the economies in Europe. But we also see some signs of a slowing economy for several quarters in a row. It’s very likely that some companies will report a large revenues and/or earning miss with current market conditions; and by that just scaring the hell out of this market. That’s why I’m considering to wait for the earnings season and buy stocks of companies that reported an unexpected miss.

Stocks which look attractive to me at this moment are Johnson & Johnson (JNJ), Altria (MO) and Simon Properties Group (SPG). Since yesterday I have a subscription to FastGraphs so I decided to post some screenshots. I’m planning to use these screenshots more frequently on my blog.

Johnson & Johnson (JNJ)

I just initiated a position in this company and am very eager to buy more shares. You can read more about this purchase right here. The price has stayed in the price range $127-132 in the last two weeks which comes down to a forward P/E of 15 and a dividend yield of 2.95%. Based on their average P/E ratio over 10 years the company is fairly valued. The average dividend growth rate over 10 years is 7%. That means a nice double of their dividend in 10 years using the 72-rule. Still, their dividend payout ratio remains attractively low at 44%. Oh yes, before I forget: J&J has increased their dividend for 56 following years which makes the company a true Dividend King.

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Altria (MO)

My position in this tobacco stock is already meaningful in comparison with my other stock positions. I currently own 97 shares for an average buy price of $53.88. It trades around $40 at the moment; that’s 25% lower and therefor an interesting buy candidate. MO has a streak of 49 years increasing their dividend, just year after year. The P/E ratio is less than 10 and a dividend yield of more than 8.3%! This means the business is historically very cheap and the market isn’t expecting anything good from this company right now.

The tobacco industry has had some negative media attention, because people have died from severe lung illnesses linked to vaping. Some questions still remain to be answered regarding these deaths though. I think the political and media pressure isn’t likely to go away any time soon. But hey, if there’s one company that knows how to deal with laws and regulations and find a workable solution for all parties (well, except for the addicted individuals maybe…) it’s Altria. Besides let’s not forget the government is reaping financial gains of the tobacco industry, whether it’s the traditional cigarretes or vaping products.

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Simon Property Group (SPG)

This high-quality REIT is here for another turn, just like in September it’s also a potential buy in October. They offer a 5.3% dividend yield and trade at an historically low AFFO of 14.5. Their dividend growth rate over 10 years sits around 10%. During the Great Recession SPG lowered its dividend in 2009 and 2010 though. They’ve already acquired the status of a Dividend Contender again. Their AFFO dividend payout ratio has increased from 67% to 71% over 10 years. This shows what a quality business this is. I’m not worried about their debt as SPG is able to refinance their debt at even lower interest rates than right now.

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These are my ideas for October if I’m mentally not strong enough to wait for the next earnings reports ☺️. What are you thinking of? Do you plan to save any extras to take advantage of price declines in the upcoming earnings round mid-October? Do you like the screenshots of FastGraphs?

Thanks for reading and please feel free to comment.

Happy investing!

Yes, I Finally Bought This Dividend King 👊🤘🏾🥂

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That’s how excited I felt when I bought shares of this fantastic business two weeks ago. It was somehow inevitable to buy shares of this dividend king and own it for a very, very long time. For three years I’ve watched the share price going up and down. But finally I laid my hands on this one. I’m talking about Johnson & Johnson (JNJ). The company with 135,000 employees who serve more than 1 billion patients each day.

I bought 9 stocks of Johnson & Johnson at a price of $128.22. At this price the stock yields 2.98%. They’re paying me $0.95 per quarter. So 9 shares equals a yearly $34.20. That’s certainly a nice yield and amount to begin with. It’s below my preferred step-in-yield of 4%, but J&J screams quality all over the place. So a lower yield is fine with me.

Their EPS (ttm) was $6.02 which means I bought the stock at a P/E (ttm) of 21.3 which seems on the high side. But J&J is also trading at approximately 15 times FY2019 earnings estimates of $8.60 per share. That’s more like a reasonable P/E.

They’ve increased their dividends for 57 in a row, which makes them a true dividend king. Another fun fact: JNJ has a streak of 35 consecutive years of adjusted operational earnings growth. Man, this is a high-quality business! In fact, the company is one of the only two companies with a AAA credit rating, the other one being Microsoft (MSFT). Their latest dividend raise was still a nice 5.6%. The 5-year yield on cost of JNJ sits around 3.85% according to GuruFocus.

The dividend payout ratio based on analysts consensus of earnings of $8.60 in 2019 and a ftm dividend of $3.80 comes down to 44%. This gives the company enough opportunities to continue increasing their dividends in the future. Over 20 years, they’ve managed to only increase their payout ratio about 10 percentage points. Talking about value creation and capital allocation! Many large and old corporations get inefficient along the way; they miss the boat, because they took things for granted for too long. But not with this giant: 25% of sales come from products launched in the past 5 years. That’s quite an achievement for such an established company.

GuruFocus states that the current return on capital (Joel Greenblatt) was 110.35%. This means the management of JNJ creates tremendous value for its shareholders. Their RoC is even ranked higher than 95% of the 1011 companies in the Drug Manufacturers industry. That is beyond comprehension, especially for such a large corporation. As a dividend growth investor I like dividend reliability and dividend growth. But, I also like to buy shares of better-than-average companies trading at below-average valuations. Buying JNJ at a forward P/E of 15, a RoC above 100% and a dividend yield of 3% means we’re into something good, folks.

In December 2018 the Board of Directors also announced they had authorized the repurchase of up to $5 billion of the company’s common stock.

I’m very excited about this purchase. It’s a new position for me and I will be watching the stock price closely to buy even more shares. The earnings streams are durable, reliable and stable because of their business diversification. Just like you want with a recession coming our way. J&J has been around for more than 130 years, so they weathered a countless number of economic and market cycles. I’m confident they will also ride this one brilliantly.

What did you buy lately and have you considered buying shares of JNJ?

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