8% Raise For The Dividend Growth 50

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Includes: AAPL, ADP, AFL, BAX, BDX, CAT, CL, CLX, COP, CVX, D, DE, EMR, GE, GIS, GPC, HCP, HSY, IBM, JNJ, KHC, KMB, KMI, KO, LMT, MCD, MKC, MMM, MO, MSFT, NEE, O, OHI, PEP, PG, PM, QCOM, SBUX, SJM, SO, T, TEG, TGT, UTX, V, VDIGX, VIG, VOO, VZ, WBA, WEC, WFC, WMT, XOM
by: Mike Nadel
Summary

Six months into my DG50 project, the portfolio has delivered outstanding dividend growth.

Wisconsin Energy is one of the standouts that has helped the portfolio to an 8% income gain since inception.

Like all quality DGI portfolios, the DG50 shrugs off Fed speculation and macroeconomic events.

Most shareholders were quite pleased in December when Wisconsin Energy (NYSE:WEC) declared an 8.3% dividend increase. Then, last week, the company announced yet another 8.3% hike as part of its merger deal with Integrys Energy (NYSE:TEG).

The end result: a year-over-year increase from 39 cents per quarter to 45.75 cents. That 17.3% jump is impressive for any company, let alone for a "boring" utility. WEC has raised its dividend 12 straight years, including several double-digit hikes, and company executives have indicated that more aggressive increases are in the offing.

Such a commitment to income-seeking shareholders is why Wisconsin Energy is the largest utility position in my personal portfolio. And it's also why WEC is one of only four utes in the Dividend Growth 50.

Originally called the New Nifty Fifty, the DG50 was selected last October by a panel of 10 Seeking Alpha contributors. On December 16, I renamed it the Dividend Growth 50 and distributed $25,000 of my own money equally among its components, creating a portfolio I expect to track for years.

In the six months since I funded the DG50 portfolio, 33 of the components have announced income raises and/or have begun paying higher dividends. Average increase: 8%.

Wow! In more than three decades in the workforce, I sure never saw an 8% raise.

Here are the increases so far. The table also includes the current annualized dividend yield (through market close of June 16):

COMPANY

DIVIDEND INCREASE

DIVIDEND YIELD

3M (NYSE:MMM)

19.9%

2.62%

IBM (NYSE:IBM)

18.2%

3.12%

Wisconsin Energy

17.3%

3.97%

Kinder Morgan (NYSE:KMI)

14.3%

4.86%

Qualcomm (NASDAQ:QCOM)

14.3%

2.89%

Lockheed Martin (NYSE:LMT)

12.8%

3.14%

Apple (NASDAQ:AAPL)

10.6%

1.63%

Beckton, Dickinson (NYSE:BDX)

10.1%

1.72%

Caterpillar (NYSE:CAT)

10.0%

3.56%

United Technologies (NYSE:UTX)

8.5%

2.23%

Coca-Cola (NYSE:KO)

8.2%

3.29%

McCormick (NYSE:MKC)

8.1%

2.05%

Dominion Resources (NYSE:D)

7.9%

3.84%

Target (NYSE:TGT)

7.7%

2.77%

Omega Healthcare (NYSE:OHI)

7.4%

6.01%

General Mills (NYSE:GIS)

7.3%

3.19%

PepsiCo (NASDAQ:PEP)

7.3%

3.00%

Johnson & Johnson (NYSE:JNJ)

7.1%

3.05%

Wells Fargo (NYSE:WFC)

7.1%

2.62%

Genuine Parts (NYSE:GPC)

7.0%

2.71%

NextEra Energy (NYSE:NEE)

6.2%

3.09%

Exxon Mobil (NYSE:XOM)

5.8%

3.45%

Colgate-Palmolive (NYSE:CL)

5.6%

2.30%

Kimberly-Clark (NYSE:KMB)

4.8%

3.29%

General Electric (NYSE:GE)

4.5%

3.38%

Realty Income (NYSE:O)

4.1%

5.03%

Clorox (NYSE:CLX)

4.1%

2.93%

HCP (NYSE:HCP)

3.7%

5.98%

Southern Company (NYSE:SO)

3.3%

5.11%

Procter & Gamble (NYSE:PG)

3.0%

3.35%

AT&T (NYSE:T)

2.2%

5.42%

Automatic Data Processing (NASDAQ:ADP)

2.1%

2.35%

Wal-Mart (NYSE:WMT)

2.1%

2.71%

AVERAGE

8.0%

Notes And Observations:

  • The DG50 paid out $391.92 in dividends in its first six months, good for a 3.06% annualized yield and a 3.13% yield on cost. Dividends, reinvested back into the companies that paid them, represented 64% of the portfolio's paper gain since inception.
  • Before the DG50 celebrates its first anniversary, maybe Chevron (NYSE:CVX) will have "unfrozen" its dividend after failing to raise it on its usual late-April timetable. Its CEO calls returning income to shareholders the "highest priority."
  • Deere (NYSE:DE) is a recent example of a company that has kept its dividend static for five quarters before raising it. Maybe that's what Chevron has in mind -- though it's highly unlikely CVX will come through with a 17.6% increase, as Deere did in 2014.
  • Chevron's biggest rival, Exxon Mobil, hiked its divvy 5.8%. Although that's hardly spectacular compared to its increases of 9.8%, 12.8% and 17.8% the previous three years, it isn't too shabby given the energy sector's woes.
  • Two consumer-products giants announced sub-par dividend raises in the last month: Clorox and Procter & Gamble. Both have been victimized by shrinking earnings and growing payout ratios. PG is in the process of streamlining its product line.
  • Like WEC, Kinder Morgan offered a stout interim increase, pushing its year-over-year income growth up by 14.3%. KMI has promised a $2 dividend before year's end (it's at $1.92 now), followed by 10% annual DG through the end of the decade. The oil pipeline company faces many skeptics about both its dividend policy and its overall financial health. I am less skeptical; KMI has been a fine performer in my personal portfolio.
  • Strong dividend growth and price pullbacks elevated IBM, Pepsi and Johnson & Johnson into the 3% yield club as of June 16. At 18.2%, IBM announced the biggest income increase since my previous DG50 report.
  • Due to a credit breach and a botched Canadian launch, things looked bleak for Target a year ago. But its price rebounded nearly 50% from its low, and it recently announced a healthy 7.7% dividend increase.
  • The DG50's top income producer through six months was AT&T, which returned $14.20 into the portfolio. Next came two REITs that have had multiple dividend hikes this year: Omega Healthcare ($14.04) and Realty Income ($12.55).
  • Looking ahead to expected dividend raises for the other 17 components: July: ConocoPhillips (NYSE:COP); Smucker (NYSE:SJM); Hershey (NYSE:HSY); AFLAC (NYSE:AFL). August: Walgreens Boots (NASDAQ:WBA); Altria (NYSE:MO); Deere. September: Verizon (NYSE:VZ); Philip Morris (NYSE:PM); Microsoft (NASDAQ:MSFT); McDonald's (NYSE:MCD). October or November: Kraft (KRFT); Visa (NYSE:V); Starbucks (NASDAQ:SBUX); Emerson Electric (NYSE:EMR).
    As discussed earlier, we don't know what Chevron will do. The same is true of Baxter (NYSE:BAX), which is spinning off its biopharmaceuticals business and hasn't clarified its dividend plan.

What About Total Return?

My cash outlay for the DG50 portfolio was $25,029.94. Six months later, at Tuesday's market close, the value was $25,639.39. That's an unrealized gain of $609.45, or 2.44%.

The goal of the project is to build an inflation-beating income stream, not to compete against any benchmark or index. And I certainly don't want to make short-term comparisons involving a portfolio I plan to hold for at least a dozen years. While market watchers fret about what the Fed might do or react to macro trends, DG investors know that a portfolio filled with high-quality names will reliably pay and grow dividends through good times or bad.

Nevertheless, on the same day I bought the DG50, I also funded small stakes in Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), Vanguard Dividend Growth Fund (MUTF:VDIGX) and Vanguard S&P 500 ETF (NYSEARCA:VOO). After six months, with all dividends reinvested, VIG had gained slightly less than the DG50, 2.40%, while VDIGX was up 4.85% and VOO had a 5.76% gain. When it came to income growth, the DG50 easily surpassed VIG, VDIGX and VOO.

As for individual total-return performers, Kraft experienced the biggest paper gain (42.7%) through the DG50's first half-year. It was followed by Starbucks (30.6%), Walgreens (16.9%), Apple (16.7%), Smucker (12.6%) and Target (10.7%).

Companies experiencing double-digit unrealized losses were HCP (15.8%), Wal-Mart (14.3%), PG (12.4%), Genuine Parts (12.2%) and Southern (11.7%).

Conclusion

The Federal Reserve did not raise interest rates Wednesday, but its optimistic comments about the economy fueled speculation that the long-anticipated hike will happen in September. We'll see.

Whenever the Fed finally does raise rates, millions of investors will have knee-jerk reactions. Some sectors might get hit hard.

I doubt such an event will trigger an overall market correction. But if it does, I will relax and remain confident.

The DG50 will continue to churn out dividends. And its income stream will grow ever higher. In other words, it will just keep doing its job.

Disclosure: The author is long ALL OF THE COMPANIES MENTIONED IN THIS ARTICLE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.