Expected Dividend Increases for May 2021

As I'm writing this blog post, we have went from ideal high temperatures in the 60s Fahrenheit here in Central Wisconsin just a few days ago to muggy highs in the low 80s. It's safe to say that although summer is officially 7 weeks away, summer has unofficially began here in Central Wisconsin.

With that aside, I'll be discussing my portfolio's dividend announcements during the month of April and looking ahead to dividend announcements that I'm expecting in May.

Actual Dividend Announcements for April 2021

Dividend Freeze #1: Exxon Mobil (XOM)

While I was anticipating that Exxon Mobil would have announced a dividend increase in April as was customary pre-COVID for more than 3 decades, XOM opted to keep its quarterly dividend in line with the previous of $0.87/share.

Although a bit disappointing, I can understand why XOM opted to freeze its dividend. It will be interesting to see whether the company will raise its dividend by the end of the year in order to maintain its status as a Dividend Aristocrat.

Distribution Freeze #1: Enterprise Products Partners (EPD)

When Enterprise Products Partners announced that it was keeping its distribution in line with the previous of $0.45/unit, it was somewhat surprising. 

Given that EPD had just resumed distribution increases with a nice 1.1% raise in January, WTI crude has since stabilized to an average price of $59.06/barrel through April of this year, and that natural gas has settled at an average price of $3.30/MMBtu, I was anticipating a 0.6% increase in the quarterly distribution to $0.4525/unit.

At any rate, EPD's distribution is well-covered and since the company is a high-yielding component of my portfolio, I don't need distribution increases every quarter to be pleased with the strong income that it throws off for my portfolio.

Dividend Increase #1: Johnson & Johnson (JNJ)

Johnson & Johnson announced a 5.0% increase in its quarterly dividend from $1.01/share to $1.06/share, which was slightly below my expectation of a 6.9% increase in the quarterly dividend to $1.08/share.

Regardless, JNJ's dividend increase once again easily beat inflation, and the only year of the 59 consecutive years of dividend increases that JNJ failed to beat inflation was in 1980 when inflation was a staggering 13.5%.

Across my 4 shares of the stock, my net annual forward dividends increased by $0.80 as a result of JNJ's dividend announcement.

Dividend Increase #2: Southern (SO) 

Southern announced a 3.1% increase in its quarterly dividend from $0.64/share to $0.66/share, which was precisely what I predicted.

My net annual forward dividends advanced by $0.40 across my 5 shares of the stock due to SO's dividend announcement.

Dividend Increase #3: International Business Machines (IBM)

Wrapping up April's dividend announcements with a disappointing dividend increase from International Business Machines, IBM did the bare minimum to extend its consecutive dividend increase streak to 26 years, announcing a 0.6% increase to the quarterly dividend from $1.63/share to $1.64/share.

Despite this disappointing dividend increase, IBM remains a cash flow machine poised to throw off $11-$12 billion in FCF in 2021 (against a dividend obligation of roughly $6 billion), which bodes well for the repayment of the company's ~$56 billion in debt in the years ahead.

Across my 4 shares of the stock, my net annual forward dividends increased by $0.16 as a result of IBM's dividend announcement.

Expected Dividend Increases for May 2021

Expected Dividend Increase #1: Lowe's (LOW)

It will be interesting to see whether Lowe's resumes its pre-COVID dividend increase schedule of late May or early June since the company just raised its dividend last August.

In light of the favorable operating environment for LOW, Yahoo Finance is forecasting that the company will grow its earnings 14.2% annually over the next 5 years. 

With this in mind, I am anticipating that whether LOW's dividend increase is in late May/early June or August again, LOW will announce a 10.0% increase in its quarterly dividend from $0.60/share to $0.66/share.

Should this dividend increase manifest itself, my net annual forward dividends would be boosted by $0.96 across my 4 shares of the stock.

Expected Dividend Increase #2: Leggett & Platt (LEG)

Since Leggett & Platt hasn't announced a dividend increase since May 2019, it will be interesting to see whether LEG makes up with a decent dividend increase this time around.

I'm anticipating that LEG will announce a 5.0% increase in its quarterly dividend from $0.40/share to $0.42/share, which takes into consideration that LEG is recovering from the impact of COVID-19.

If this dividend increase plays out as I expect, my net annual forward dividends would advance by $0.64 across my 8 shares of the stock.

Expected Dividend Increase #3: American Tower (AMT)

Rounding out my list of dividend increases that I'm forecasting for May is the hyper-dividend growth stock, American Tower.

What makes AMT interesting, is that aside from its commitment to growing its dividend by around 15% for 2021, AMT regularly increases its dividend each quarter.

Since AMT's dividend increases announced in May are typically the smallest, I am anticipating that AMT will announce a 1.6% increase in its quarterly dividend from $1.24/share to $1.26/share.

Should this dividend increase play out, my net annual forward dividends would be boosted by $0.24 across my 3 shares of the stock (since I will be purchasing another 2 shares of the stock the first week of May ahead of the dividend increase).

Concluding Thoughts:

Since XOM and EPD didn't increase their dividend/distribution, my net annual forward dividends only advanced by $1.36 during April. Regardless, this would require a $34.00 capital investment at a 4% yield to replicate.

Looking ahead to May, I am anticipating that I will receive $1.84 in dividend increases during the month, which would require $46.00 in fresh capital invested at a 4% yield to match.

Discussion:

Did you experience disappointing dividend announcements as I did with IBM's paltry dividend increase?

Are you expecting any first time dividend increases as I am with AMT?

I appreciate your readership and welcome your comments in the comment section below!

May 2021 Dividend Stock Watch List

Hot off the month of April, which likely will see nearly $3,000 in capital deployed during the month, I am anticipating that May will mark yet another month of capital deployment around $3,000.

May will turn out to be a better month of capital deployment than expected due to the fact that I ended up overestimating what my income would be for 2020 when applying for Marketplace health insurance coverage, so I received a decent tax refund.

Lately, I have been emphasizing growthier dividend stocks because as my dividend income continues to grow, I am shifting to the mindset that I will need just as many true dividend growth stocks as I will need higher yielding, less growthy dividend stocks to combat inflation.

It's for this reason that I will be highlighting several growth-oriented dividend stocks in my May 2021 watch list.

Image Source: Pexels

Dividend Stock #1: Abbott Laboratories (ABT)

Abbott Labs, the parent company from which AbbVie (ABBV) was spun off, is a solid dividend growth stock that I have wanted to own for years.

Since I was more of a yield-hungry investor in the first few years of my investing journey, I snubbed the stock, always thinking that the yield was never enough.

What I failed to realize back then, is that Abbott Labs is a high-quality business that very rarely trades at an enticing valuation or yield.

I realize now that Abbott Labs' interest coverage ratio is reasonably strong at 10 for last fiscal year, the company is forecasting 37.0% adjusted diluted EPS growth this fiscal year, and the stock is trading at only 24 times this year's adjusted diluted EPS forecast (data sourced from Abbott Labs' Q4 2020 earnings press release and Yahoo Finance).

When I take those factors into consideration, as well as the fact that Abbott Labs' adjusted diluted EPS payout ratio is likely going to be in the mid-30% range for 2021, I'm fine with the company's ~1.5% yield because I know high-single digit to low-double digit annual growth over the medium-term will occur.

Overall, I like Abbott Labs' total return potential at the current price of $123.31 a share (as of April 25, 2021) as the 1.5% yield, high-single digit annual earnings growth potential, and a static valuation multiple, make it likely that Abbott Labs' will meet my 10% annual total return requirement over the next decade.

Dividend Stock #2: L3Harris Technologies (LHX)

Moving to the next dividend growth stock on my watch list for May 2021, I am looking to add to my position in L3Harris Technologies for the same reasons that I recently discussed in an article on Seeking Alpha.

L3Harris' non-GAAP EPS and FCF payout ratios around 30% during 2020 leave plenty of room for expansion in the payout ratio over the long-term, the company initiated guidance calling for mid-single digit revenue growth in 2021 paired with high-single digit to low-double digit non-GAAP EPS growth for the year, L3Harris' balance sheet is among the best in its industry, and the stock is trading at just over 16 times the midpoint of its non-GAAP EPS guidance for the year, which I estimate is a 15% discount to the stock's fair value (based on the stock's current price of $211.02 a share as of April 25, 2021).

Coming off the recent 20% dividend increase, shares of L3Harris yield 1.9% and offer the strong likelihood of 8.0-9.0% annual earnings growth with valuation multiple expansion on top of it, which makes it likely that shares will easily meet my 10% annual total return requirement over the next decade.

Dividend Stock #3: Microsoft (MSFT)

The third and final dividend growth stock that will be on my watch list heading into May 2021 is Microsoft.

Similar to Abbott Labs, Microsoft has been a stock I wanted to own from the very beginning of my investing journey, but for the same reasons, I never ended up pulling the buy trigger to this point.

Absent a massive runup in the stock price in the next couple weeks, I'm looking to make that change in May because while Microsoft trades at 35 times this year's average earnings forecast via Yahoo Finance (at the share price of $261.96 as of April 25, 2021), analysts are expecting Microsoft's diluted EPS to grow at an 18.2% clip annually over the next 5 years, which works out to a PEG ratio below 2.

When considering that Microsoft is the only other publicly traded U.S. company with a triple A credit rating from the ratings agencies aside from Johnson & Johnson (JNJ), and that the company has a variety of growth catalysts, including its Azure cloud platform (second only to Amazon's Web Services business in market share), Office 365, and the recent $22 billion HoloLens deal over the next decade with the U.S. Army, Microsoft's valuation isn't as steep as it initially appears.

Microsoft's diluted EPS payout ratio is positioned to be in neighborhood of 31% during 2021 (factoring in a 10.7% increase in the quarterly dividend that I expect will be announced in September), which along with the earnings growth, will allow Microsoft to be generous with its dividend increases and share repurchases going forward.

Even factoring in a reversion to Microsoft's diluted PE ratio to 30 in the years ahead (as Microsoft's massive revenue base works against its growth potential) and conservative 15% annual earnings growth from 2022 to 2025, I estimate that through 2025, Microsoft is set to deliver annual total returns well in excess of 10%.

Concluding Thoughts:

Unless there are huge runups specifically in ABT and MSFT over the next few weeks, I plan to add both, in addition to LHX during the month of May.

While equally weighted positions in these three stocks would average a starting yield in the 1.4% range, it's important to note, especially to my younger self, that these three stocks will undoubtedly offer high-single digit to low-double digit annual dividend growth over the medium-term, which will boost that yield on cost considerably.

Discussion:

Are you considering purchases of ABT, LHX, or MSFT in May 2021?

If not, what dividend stocks are on your watch list heading into May 2021?

As always, I appreciate your readership and look forward to your comments in the comment section below!

The Importance Of Limiting Discretionary Spending In Building Wealth

While contemplating the financial progress that I have made over the past several years and writing my previous blog post outlining the potent combo of dividend growth investing and frugality, it occurred to me that what has really allowed my investment portfolio to make it to this point in a relatively short period of time is my natural tendency to limit my discretionary spending.

Fortunately, I have been able to live on just over $100-$125/month in discretionary spending for virtually all of my adult life. 

This is a stark contrast to the nearly $1,500/month that the average American adult spends on non-discretionary items (i.e. drinks, takeout delivery, gym memberships). That's damn near enough to fully max a 401(k) each year, which is why I believe it is incredibly important to make sure your discretionary spending is providing you with enough value to justify it. 

Image Source: Pexels (nothing against Starbucks, but this was the best free stock photo discretionary spending item I could find)

Total Monthly Discretionary Spending: $107-$122/month

Quick Serve Restaurant purchases: $50-$60/month

For the past several years, my parents and I have had an agreement that we would rotate every other week paying for the cost of eating out each Friday night.

Given that we typically spend around $25 each visit at businesses, such as McDonald's, Burger King, Culver's, and so on, and there are typically two visits each month that I am responsible for covering, my typical month of spending is $50-$60.

Since my family and I generally eat home made meals the other 6 days a week, I believe this spending item can be justified as it provides a nice respite from meal prep and something to look forward to at the end of each week.

Cricket smartphone service: $20/month

While a smartphone is practically an extra appendage for most these days (including yours truly), countless generations lived without smartphones in the past, so I must confess that this is a discretionary spending item.

Fortunately, my family is on a 5 line plan with Cricket Wireless for $20 a line/month (which is owned by AT&T, so I see a small kickback on my costs every month). Given that I receive 5 GB of data and unlimited talk and text for just $20/month, I am entirely comfortable keeping this as a recurring expense.

Clash of Clans Gold Pass/Other Purchases: $10-15/month

I'm not too much of a gamer, with the exception of the freemium mobile strategy smash hit game Clash of Clans. If there has ever been any game that revolutionized the mobile gaming world as much as Clash of Clans, I have yet to hear about it. 

Clash of Clans developer Supercell has arguably been the most community friendly developer in the industry as Chief Pat noted in a recent video, where he ranked Clash of Clans as his favorite Supercell game.

The Gold Pass offers a great value at just $5/month as it helps to dramatically lower the cost of troops to attack enemy bases, lower the cost of troop upgrades in the laboratory, lower wall/building upgrades, as well as hero upgrades. 

On a near monthly basis, Clash of Clans also offers solid values, such as Book of Building/Book of Everything items (which instantly finish upgrades and can save over two weeks of time), and so forth.

Since I began playing CoC in late 2013, I have played it much more on than off, quitting on two occasions for roughly 2 and a half years combined (primarily d/t school and work obligations). The gameplay rarely gets stale and I envision myself playing this game several hours a week for many more years.

GoDaddy Shared webhosting: $10/month (annual subscription)

The annual expense of hosting this blog works out to roughly a $10/month average, which isn't too steep of a price to pay for a hobby that consumes a couple hours of my time each week.

Patreon: $8/month

I use this service to subscribe to Jason Fieber's exclusive content, in which he details the activity in his portfolio, and updates his portfolio accordingly at the beginning of each month. I have followed Jason since probably around 2015. He and I think quite a bit alike in terms of our investing strategy, so I think $8/month to get his insights into what sectors and stocks are undervalued to the point that he is investing his own money in said sectors and stocks is worth every penny.

Peacock Streaming: $5/month

In the age of streaming, Peacock offers a decent value at $5/month when considering that tons of WWE Network content and live PPVs come with the service, which is great considering that I have followed the WWE since I was a kid in the early 2000s.

Avast SecureLine VPN/Avast Driver Updater: $4/month (annual subscription)

Let's face it, in a world that is as dependent on technology as it is, Avast's SecureLine VPN and Driver Updater programs for $2/month each on an annual subscription are lifesavers. I can go about my business in public checking my accounts without worry that a hacker is going to potentially have access to my sensitive information. The Driver Updater program helps my laptop to stay up to date and run as smoothly as possible, which is of the utmost importance for a device that I use upwards of 10 hours a week.

Concluding Thoughts:

I am fortunate to live with my parents as my discretionary spending would be probably double or triple if I were required to pay for my own internet and cook my own meals each night (I'd admittedly probably eat out more frequently than I am now if that were the case, which is why I should really learn the valuable skill of cooking in the next few years to be honest). 

Overall, I'm very satisfied with my discretionary spending in the ballpark of $100-$125/month, as I feel it strikes a nice balance between "treating myself" in the present and saving for my future.

This minimal discretionary spending has allowed me to achieve a savings rate in excess of 60%, and as a result, I anticipate I will hit $100k in investments probably in the next 2 years, assuming a relatively flat market.

Discussion:

Are there any discretionary spending items in your budget that you are considering dropping? Or do you feel fairly justified in each item as I do?

Thanks for reading and I look forward to your comments in the comment section below!

A Reflection On The Power Of Dividend Growth Investing & Frugality

Over the past couple days, I have been thinking about just how far I have come since I began my investing journey in September 2017. As I'm just a couple years away from approaching the milestone of my net annual forward dividends matching the income that I earned at my first job as a part-time cashier at Shopko in my first two years of undergrad, I thought it was an apt time to examine the power of dividend growth investing and frugality in real time.

Image Source: Pexels

As I alluded to in a post a couple years ago comparing my income writing for Seeking Alpha and working as a cashier at Shopko, I made an average of around $4-5k annually over my two years at Shopko.

At the present moment, my net annual forward dividend income is $1,602, which is despite the fact that my portfolio has sustained numerous dividend cuts over the past year, and that I didn't start investing meaningful capital of more than a few hundred dollars a month until I completed my Bachelor's degree in August 2019 as I noted in my post of lessons that I learned after two years of investing.

Assuming that I invest $15k from May to December of this year, and that I invest $20k in 2022 and another $20k in 2023 at a 4.0% net yield (which I believe will ultimately prove conservative as it factors in no increase in earnings over the next couple years), my net annual forward dividends will be within my range of average annual earnings while I was a part-time cashier in college.

If you had told me just 6 years ago when I began my first job in college that in less than a decade, my net annual forward dividends would match that of my earnings at my first job, I really wouldn't have believed you.

It's breathtaking to think that in the span of just 6 years since my first job, I have paid nearly $40k in tuition/books and accumulated a dividend portfolio worth nearly $50k while never even cracking $40k in annual earnings.

A 60%+ savings rate combined with the power of dividend growth investing is capable of almost literally moving mountains and parting the Red Sea in financial terms, which is what makes me so damn excited for the next 6 years of this journey!

Concluding Thoughts:

I hope that my short story outlined in this post. the story of a guy that has been extraordinarily ordinary in virtually every respect of his life, serves as motivation to those that are in the very beginning stages of their journey, and as a reminder to those that are further along, that dividend growth and frugality are arguably the most potent one-two punch to the financial promised land.

If I'm capable of making such tremendous progress in a relatively short amount of time adhering to the principles of dividend growth investing and frugality, I truly believe everyone is capable of doing so!

Discussion:

Are there any milestones within your DG portfolio that you have thought about lately?

As always, thanks for reading and I look forward to your comments in the comment section below!