Divvy It Up! Cleveland Financial Advisor Explains Rising Income from Rising Dividends

Divvy It Up

In our view, after capital appreciation, the next best thing for an investor to enjoy is a growing stream of income as a result of steady dividend increases. The two typically go hand in hand. Investors in companies with increasing profitability ultimately will be rewarded with a higher share price. Likewise, if dividend payments are part of the company’s capital allocation strategy to reward shareholders, an annual dividend increase is highly likely. Doing so 25 years in a row earns them inclusion in the “Dividend Aristocrat” club. Building a portfolio that includes a number of companies with such characteristics can be a great way to augment income from other sources. If current dividend income is not needed, then regular dividend re-investment in additional shares of the company (commonly called “DRIPPING”) not only builds your share count, but also improves your cash flow since each payment increases due to your higher share balance. The compounding effect is enhanced further whenever the dividend is increased. Most companies that have a history of increasing their payouts do so around the same time each year. 

Below are a few examples of the quarterly dividend payment changes over the past 10 years of companies both large and small that we follow, acknowledging that there is no guarantee that their future dividend increases or dividend payments will continue. Indeed, there have been plenty of high profile companies such as AT&T and 3M that have recently cut their payouts due to business challenges.

6/2014 to 6/2024% Increase of Dividend
Archer Daniels Midland Co.0.24 to 0.50108%
Ecolab Inc.0.275 to 0.57107%
Johnson & Johnson0.70 to 1.2477%
Microsoft Corp.0.28 to 0.75167%
Oil-Dri Corp. of America0.19 to 0.3163%
PepsiCo Inc.0.655 to 1.355107%

By comparison, if looking strictly from a yield and cash flow perspective, the purchase of a newly issued 10-year U.S. Treasury in late June of 2014 would have locked in a yield of approximately 2.6% with a steady, never changing income stream until its maturity in June 2024 while providing no capital appreciation.  

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