Dividend Growth Offers Comfort

13 Feb 2016 14:02
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Next month is time for my company's annual reviews and raises will probably be somewhere between 2 to 3%.

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This has been the norm not just at my company but across the U.S. The real kicker is your employer tries to make you feel good about it like they are doing you a favor. This is hard to swallow, as you know executives increase their compensation well above the lousy 2-3% you will receive. Take for example Bank of America’s CEO Brian Moynihan whose 2016 compensation is increasing a whopping 23% while his stock is floundering.

While company executives feel emboldened to enrich their lives, dividend growth can offer some comfort by giving you raises that exceed that paltry raise your supervisor plans on doling out to you this year. This month I have already received two gracious raises from Dr. Pepper/Snapple (DPS) and Hasbro (HAS) that have exceeded my expectations and will no doubt far exceed my raise at review time next month.

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DPS announced a 10.4% increase to their quarterly dividend from 48 cents per share to 53 cents to be paid on April 5, 2016. I bought DPS back in 2013 @ $46 with a yield of 3.31% which now has grown to a yield on cost of 4.61%, not too shabby! When I first purchased DPS 9 people commented on the buy with 6 negative and 3 supportive. In all fairness, the 6 negative didn’t think it was a bad buy but were shocked that I passed on KO & PEP. Their biggest gripe was DPS market was limited to the U.S. and the lack of international exposure would limit growth. Regardless of what people thought back then I stood with my decision of a strong balance sheet and an incredible stable of non-cola drinks many of which were number 1 or 2 in their categories.

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HAS announced a 10.8% increase to their quarterly dividend from 46 cents per share to 51 cents. This one really surprised me and I have to admit I was wrong last summer when I did not believe growth would exceed 7%. I sold some of the shares last fall to capitalize on the equity growth that at the time far exceeded the dividend growth. I still stand by that decision to prune back some shares but the gap between HAS price equity and dividend growth has reduced thanks to the latest increase so I have no plans on to sell any shares in the near term. Overall this has been a nice investment, I bought HAS in 2012 @ $36 with a yield of 3.98% and today my yield on cost has grown to 5.64%.

At the rate my dividends are growing for some companies I am on pace to see my yield on cost doubling in just 5 more years, a total time investment of 8 years to double. I definitely do not see my salary at doubling in that same time period!

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