Another month, another step towards financial freedom.
During the month of November, my dividend income increased by 12.03%.
This growth pushed my year-to-date dividend growth rate up to 21.15% compared to the first 11 months of 2021.
And, being that December has historically been my biggest dividend month of the year, full of payments coming from companies with strong growth profiles, it’s clear at this point that my 2022 dividend growth rate will exceed 20% on the year.
It’s a great feeling… knowing that 2022 has been a very productive year for me and my portfolio’s primary goal (reliably increasing passive income) despite the broader market’s downturn.
That’s a great achievement and puts me well ahead of my long-term 10-12% annual dividend growth target.
Admittedly, much of this 20%+ growth rate comes from new capital being deployed. I haven’t taken the time to tally up my portfolio’s organic dividend growth rate throughout the year, but I suspect it’s in the high single digits (during my year-end review, I’ll highlight the year-over-year dividend growth provided by each individual holding).
But, in the meantime, I’ll go ahead and highlight some recent dividend raises because it’s been a great couple of weeks for my portfolio (and dividend growth investors, in general).
Dividend increases have been coming in a rapid-fire fashion throughout the last month or so.
Off the top of my head…
Bristol Myers raised their dividend by 5.6%.
Merck raised theirs by 5.8%.
Amgen upped their payment by 9.8%.
Mastercard gave shareholders a 16.3% raise.
Broadcom announced a 12.2% raise alongside its earnings report last week.
Ecolab increased its dividend by 3.9%.
W. P. Carey kept up its quarterly raise schedule, increasing its payment by 0.4%.
Mid-America Apartment just increased its dividend by 12%.
Carrier Global increased its dividend by 23%.
It’s been a whirlwind of dividend growth in recent weeks, so I may very well be forgetting about another raise or two.
But, that’s a great problem to have!
2022 has been a tough year for markets. But, even so, blue chip dividend growth stocks continue to raise their payments.
That’s what allows me to sleep well at night.
And, the combination of organic growth, selective dividend re-investment, and the disciplined addition of monthly savings to the market throughout the year is allowing me to make significant strides towards the day when my passive income exceeds my lifestyle’s expenses… meaning true financial freedom.
I’m not quite there yet… but another few years like 2022 will really accelerate that journey for me and my family.
Because of the SWAN (sleep well at night) nature of this compounding process throughout a period of negative volatility, I’ve found myself extremely focused on using my monthly savings to bolster my passive income stream by buying more shares of the wonderful companies that pay reliably increasing dividends recently.
It’s true that many of the well known high growth tech stocks continue to at significant discounts to their historical averages, implying great long-term opportunities.
In the past, I’ve been happy to take advantage of such opportunities to build out my allocation to secular, and even speculative, growth names…even if they didn’t pay dividends.
But now, I can finally see the finish line (with regard to my passive income replacing the need for active income). And even though it will take a few more years to cross that threshold, I’m dedicated towards doing all that I can to accelerate the process.
I touched upon this in a recent conversation in the Dividend Kings chatroom, stating:
“In general, I want to increase my portfolio’s overall yield and that requires me to continue to invest in names with higher yields….right now my portfolio yields roughly 2%…I’d love to take strides to bump that up towards 3% (while still maintaining nice growth prospects) over the next couple of years.”
It’s hard to boost a portfolio’s overall yield when you allocate cash towards stocks with a 0.00% yield and therefore, barring incredibly attractive value (I have to admit, the Tesla (TSLA) sell-off is intriguing from a forward PEG basis) you likely won’t see me buying non-dividend payers.
With that in mind, I made 10 trades, all purchases.
And low and behold, they all pay reliably increasing dividends.
We’ll start off with the series of trades that I made on 11/1/2022 when I put my October dividends to work via monthly selective re-investment (for those of you who don’t know, throughout each month I pool up my dividends and then on the first trading day of the next month I selectively re-invest that cash).
Here’s the trade alert that I provided on 11/1/2022 to Dividend Kings subscribers:
“Hello everyone! I hope you all had a happy Halloween. I had a great time trick-or-treating with the family…and then later in the evening, tallying up my October dividends. I was pleased to see my dividends up by 10.16% on a y/y compared to last October…now my year-to-date dividends are up by 22.10% on a y/y basis. I’m always happy to see double digit dividend growth – that’s what allows me to sleep well at night during the market’s recent volatility. This morning I put those dividends to work, adding to my existing positions in ORCC at $11.96, REXR at $55.62, SPGI at $324.32, ECL at $148.8, ENB at $39.63, and HRL at $46.50. A nice mix of high yield (ORCC/ENB) core dividends (REXR/HRL/ECL), and higher dividend growth (SPGI). Now I’m looking forward to November’s results! Best wishes all.”
It was great to be able to continue to average down into Owl Rock. I still believe that company deserves a 1.0x NAV multiple and therefore, I think shares offer a wide margin of safety. Combine that with the stock’s recent 6.5% dividend increase, and increasing my position weighting here was an easy decision.
Furthermore, I’m happy to continue to build my Rexford, Ecolab, Hormel, and S&P Global positions via selective re-investment. At these price points I didn’t think that any of these names offered a significant discount to fair value; however, the beauty of my selective re-investment strategy is that I allow myself to ignore valuation and instead, focus primarily on quality, when it comes to making those purchases. This ensures that overtime, I’m continually increasing my share counts when it comes to best-in-breed companies and over the long-term, I think this will play a major role in my continued outperformance because when I look at markets, it seems clear to me that quality outperforms value over the long-term.
Obviously, I’d like to combine both (quality + value)… but those opportunities are rare.
Therefore, I often adhere to the Buffett mantra, “It’s far better to buy shares of a wonderful company at a fair price than a fair company at a wonderful price.”
And that way of thinking leads us into my next purchase: Ecolab at $131.17.
As regular readers know, in late October I liquidated my Netflix (NFLX) at $291.79 with hopes to reallocate those proceeds into dividend growers.
In late October I began that process, adding to my Essex Property Trust position at $222.97. And in November, I finished the trade, buying shares of Ecolab and The Hershey Company (HSY).
Here are the two trade alerts that I sent to Dividend Kings members regarding those trades:
On 11/3/2022, I wrote:
“I just put roughly 1/2 of the NFLX proceeds from my trade a week or so ago to work buying more ECL at $131.17. I’m nearly doubling down on ECL here…my position is relatively small still, but I feel very comfortable averaging down into weakness with this blue chip dividend growth name. I think this is a clear quality upgrade (NFLX to ECL). And, I still have a bit less than half of the NFLX cash to put to work in the coming days/weeks. ECL’s forward growth outlook is slowing due to macro headwinds/forex concerns…but right now, the market is still expecting double digit EPS growth in both 2023 and 2024.This is one of those stocks that I’d watched for years without buying and now that we’re down nearly 43% on a year-to-date basis, I’m happy to accumulate shares (finally). This is one of Bill Gates’ largest holdings and I always feel good when I’m investing alongside investors like Gates who are trying to preserve their massive wealth over the long-term. I expect to see a 4-7% dividend increase announced in early December and then assuming growth picks up in the coming years, I think this company will return to its normal 10%+ annual dividend growth.”
“ECL is very rarely on sale and here, down 40%+ from its highs, it’s still trading for more than 26x forward expectations. But, its 20-year average P/E is north of 28x and over the last 10 years its averaged nearly 31x…so here at 26x, shares are historically cheap. And…even though ECL’s yield is relatively low (1.5%)…it’s infinitely higher than NFLX’s 0.00% yield.”
And then on 11/11/2022 I said:
“I just made a trade – using the rest of my NFLX proceeds and the first bit of my November monthly savings to establish a new position in HSY. This is a name that I sold years ago and have regretted it ever since. HSY’s dividend growth during the last couple of years has been fantastic and therefore, I’ve been eying the stock a bit. Admittedly, this one always seems expensive. That’s because it trades at a high premium to the market and even its peers in the staples space. I bought shares at $213.40 today, which is roughly 23.85x next year’s earnings. HSY’s 10-year average P/E is 24.1x, so we’re talking about a slight discount to that. HSY’s 20-year average P/E is 22.7x, so we’re still looking at a premium relative to that mark. But, I hope to average down into further weakness if it occurs and therefore, my next target will be in the $203 area, or that 20-year average on expected 2023 EPS. Then, from there, I hope to buy more shares in the $188 area (21x forward) and then $179 (20x forward). So…that’s the plan in the near-term with this blue chip. In terms of annual EPS growth…it doesn’t get much more consistent than HSY. This is definitely a sleep well at night stock…and, making matters better, the company recently raised full-year guidance to 14-15% growth on the top-line and bottom line as well during 2022…showing that this company has had what it takes to continue to grow throughout the high inflationary environment. In closing, this definitely isn’t an example of a deep value trade. But, HSY shares are down by roughly 7.2% during the last two trading sessions and I feel pretty good about making an entry level purchase here below my initial $214 target. To me, this is the perfect example of a Buffett…buy a wonderful company at a fair price type of trade. Have a great weekend, everyone!”
Then, flash forward a few weeks, and I began putting the rest of my monthly savings to work.
On 11/28/2022 I added to my Medtronic (MDT) position for the first time in years. Healthcare names have performed relatively well throughout 2022 thus far so I’ve largely focused my attention elsewhere (where wider margins of safety exist). However, MDT’s sell-off presented a unique opportunity to buy a Dividend Aristocrat at a fair price.
Here’s that Dividend Kings trade alert:
“I just put more of my November savings to work, adding to my MDT position at $76.01. The stock is trading for less than 14.5x this year’s earnings expectations here…and slightly below 14x next year’s EPS expectations. The stock yields more than 3.5% after today’s 4% sell-off. MDT shares are down roughly 13.5% since the start of the month. I don’t expect this one to be a fast grower, but I think it’s a solid defensive/low beta blue chip trading at a rare historical discount that offers a solid yield and mid-to-high single digit dividend growth prospects moving forward. Is anything that I just wrote exciting? No, it is not. But, boring assets can still compound capital at an attractive rate. MDT’s dividend yield + fundamental growth + mean reversion back up to the 17.5x 10-year average has the potential to result in strong total returns from here moving forward (roughly 15% annualized RoR looking out to the end of fiscal 2025). I’ll take it. After this move I’ve bought HSY and MDT with my monthly saving thus far. I have 40% of my monthly savings left over still and I’m looking forward to putting that cash to work this week (and potentially this afternoon if this sell-off persists).”
And finally, on 11/20/2022, I put the rest of my monthly savings to work in the market, entering into the cell tower REIT space for the first time with a Crown Castle (CCI) purchase.
Here’s that trade alert:
“I just put the rest of my November savings to work – initiating a position in CCI at $139.28. I’ve been doing a lot of work on the cell tower REIT space this month and while AMT has some higher quality metrics (namely, their balance sheet), I like CCI much higher yield as I take steps to increase my portfolio’s yield overall. Shares yield roughly 4.5% here and CCI recently raised their dividend by 6.5% (a wonderful raise for a high yielder, IMO). I didn’t have exposure to the cell tower space in my portfolio prior to this trade and I’m happy to do so – I think there are secular growth tailwinds at play here, especially with CCI which is focusing on diversifying into small cell and fiber assets. I’ll post a F.A.S.T. Graph below, showing that CCI, trading at ~19x AFFO, is historically cheap. Sure, shares are up 14.4% from their recent lows, but they’re still down by more than 33% on a year-to-date basis, 19x is well below the COVID-19 low, and as you’ll see below, CCI shares have shown fairly strong support at this level. In short, I like the yield, the dividend growth, and the risk/reward at this level. Overall, I added shares of HSY, MDT, and CCI to my portfolio this month…all high quality dividend payers and I look forward to seeing their payments factor into my compounding process.”
Nicholas Ward’s Dividend Growth Portfolio
Core Dividend Growth
|Company name||Ticker||Cost basis||Portfolio Weighting|
|Johnson & Johnson||JNJ||$114.02||2.12%|
|Bristol Myers Squibb||BMY||$49.47||1.47%|
|Deere & Co.||DE||$347.85||1.37%|
|Essex Property Trust||ESS||$223.86||0.88%|
|Illinois Tool Works||ITW||$130.90||0.87%|
|Air Products and Chemicals||APD||$234.91||0.69%|
|Alexandria Real Estate||ARE||$130.96||0.46%|
|Rexford Industrial Realty||REXR||$51.72||0.35%|
|Stanley Black & Decker||SWK||$139.75||0.32%|
|Camden Property Trust||CPT||$117.85||0.20%|
|Automatic Data Processing||ADP||$227.52||<0.10%|
|British American Tobacco||BTI||$37.59||1.95%|
|W. P. Carey||WPC||$65.23||1.55%|
|Federal Realty Investment Trust||FRT||$115.13||0.65%|
|National Retail Properties||NNN||$36.57||0.62%|
High Dividend Growth
|Booz Allen Hamilton||BAH||$75.49||0.47%|
|S&P 500 Global||SPGI||$332.22||0.36%|
|Ares Capital Corp.||ARCC||$16.94||0.30%|
|Owl Rock Capital||ORCC||$14.17||0.30%|
|Brookfield Asset Management||BAM||$23.67||0.17%|
*I hold most of my cash reserves in a checking account as opposed to my brokerages, so in reality, my cash position is approximately 6.5%.
Portfolio Data accurate as of 12/20/2022
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.