Make no bones about it, increases are at the heart of every worthwhile dividend investment. Without them, your money isn't working nearly as smart as it could be.
This is especially the case for longer-term holdings.
Sure, in the short term, compared to a lower-yielding dividend growth stock, a fat initial yield is going to be the bigger breadwinner.
But down the line, you'll see the dividend grower catch up and then out-pay the former. And every year after that, the gap will only get wider in favor of the dividend grower.
It's a patient investor's strategy, but it pays off big time.
Because dividend growth is so important, when a company announces an increase, it's always a great excuse to check it out. After all, as is often the case, one increase foreshadows another.
That's why, once a month, I look back on recent dividend increases to see which companies continue to put more shoulder into their dividends. It's a good way to discover new stocks and revisit old ones.
In that vein, here's a rundown on three stocks that increased dividends this month…
As one of the many banks subject to the Fed s repeated stress tests, JPMorgan has kept its payout rates abysmally and unattractively low - at least compared to their pre-crisis levels.
But that's starting to change. The Fed has been slowly relieving pressure, and banks' dividend payout ratios (DPR) - JPMorgan's included - are beginning to climb.
Having received Federal approval for its 2013 capital plan, JP Morgan raised its quarterly dividend substantially yesterday.
In fact, the 26.7% hike lifts JPM's annual payout to $1.52 - which happens to be the exact amount it paid out in 2008, prior to the federally imposed dividend cut.
The new dividend amount represents a projected yield of 2.87%. That's still on the low end and leaves plenty of room for growth, but the general trend of banks returning their dividends to the land of the living is good news for income investors.
There's a bright future for both dividend and equity growth in financials, and JPMorgan's recent raise should have dividend seekers waking up to that reality, if they haven't already.
A relatively new dividend payer - it only started paying in 2010 - Viacom is nonetheless beginning to make a habit of annual raises.
Case in point: Yesterday's increase marks Viacom's third consecutive increase, and lifts the dividend up 9%, from $0.275 to $0.30.
But even though the stock is off to a good start with its dividend program and looks to keep its string of increases intact, there's still some work to be done.
The projected yield based on the new dividend comes in at a pint-sized 1.74%. That's still roughly half a percentage below the S&P 500 average and hardly worthy of serious attention at the moment.
Before Viacom gets any respect as a contending dividend stock, it'll have to put more weight into dividend growth. And given its still relatively low dividend payout ratio of 33%, it can certainly afford to do so.
Umpqua Holdings (NASDAQ:UMPQ)
You're forgiven if you've never heard of small-cap dividend-payer Umpqua Holdings. With a market cap of $1.5 billion, it's barely on the map.
But now's the time to take notice, because last week, it hiked its dividend by 50%. A raise that substantial deserves a second glance.
The declared regular dividend raise, representing a projected yield of 4.41%, comes with a special dividend payment of $0.05 per share, as well.
Bottom line: With a three-year dividend growth rate of 29%, a respectable yield by any measure and a manageable DPR of 41.9%, this small-fry financial could be a big addition to an income-oriented portfolio.
Ah, the sweet smell of recovery! Or is it leather?
Well, in this case, it's both. Because Coach, the manufacturer and seller of high-end handbags, is reaping the benefits of the long-rising increase in consumer spending and confidence.
Yes, it's part of a cyclical sector (read: not defensive), and therefore not a candidate for a "buy and forget" portfolio holding.
Make no mistake, though, it would be foolish to dismiss Coach entirely.
And not just because we're on the "Buy" side of the cycle…
What makes Coach such an interesting dividend prospect is the fact that, since 2009, it's increased payouts 1,399% overall. No, that's not a typo.
That amounts to a 129% average annual growth rate over the same period, which more than makes up for an otherwise ho-hum yield of 2.32%.
Despite the huge rise in payouts over the last three years, Coach still maintains a low-end dividend payout ratio (DPR) of 32.5%. My guess is that the company is targeting the common 45% to 50% DPR range, at which point increases will level off.
That still leaves a large amount of headroom for dividend growth, however. Especially when you consider that earnings per share are rising steadily, as well - up 20% over the last year.
Assuming consumer confidence continues to rise and lift earnings, the dividend ceiling will only go higher.
Speaking of direct beneficiaries to the steady climb in consumer spending, Macy's is getting all the same love that Coach is.
And it's passing that love straight back to shareholders. It boosted dividends 24% this month, from a quarterly $0.20 to $0.25 per share.
Granted, that represents a below-average yield of just 2.05%. But just like Coach, what it lacks in yield, it makes up for in dividend growth.
When the economy spun out of control in 2008, Macy's did the (nearly) unforgivable and slashed dividends.
Well, I'm starting to feel a little forgiving. Because since 2009, the company has been putting its shoulder into dividend growth once again. In a big way, too - increasing dividends 400% overall and at a rate of 75% per year, on average.
Further, with a DPR of 25%, I fully expect aggressive increases to continue for the next several years, before leveling off at a DPR around 40%.
But, as always, when it comes to cyclical sectors: caveat emptor. Neither Coach nor Macy's is a dependable stock in the long run.
Squeezing equity growth and aggressive dividend growth out of them in the medium range is a compelling proposition, but it'd require you to stay on your toes a bit more than usual.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.