Dividend Yield vs. Dividend Growth

Dividend Growth Investing involves not only picking dividend paying stocks, but stocks that grow their dividends year after year. Investing in stocks for income requires dividend growth investors to find a balance between the current dividend yield and the dividend growth rate (DGR). 
 
As a dividend growth investor, I want to build a dividend income stream to achieve financial independence. It is as important to build the present income stream as is the growth of dividends over time. Ideally I want the rate of dividend growth to beat the inflation rate by a few percentage points. This article takes a look at my portfolio holdings and present a visual representation of the current yield and the 5-year DGR.


A couple of items to note from the chart below are: only stocks are included (all funds from my holdings have been left out), and one stock – IAMGold (IMG.TO) is missing, as it recently cut their dividends to 0.

Observations

  • I want the equities either high on the y-axis or far to the right (within reason…as being too far to the right can be a red flag).
  • The numbers presented here are the current yields. I have held some of these stocks for years and the yield-on-cost is higher.
  • As the dividends rise, year after year, those equities will start moving to the right (when considering yield-on-cost)
Some observations about specific equities:
  • BCE Inc’s (BCE.TO) dividend growth rate is unsustainable at 25%, especially with its current payout ratio at 85% of earnings. I expect BCE to come down lower on the graph to a more normal level.
  • CHS Inc (CHSCP) has no dividend growth and although it has a good yield, I will be considering selling this position.
  • Only two equities are below the 2% yield line (far to the left) – The Jean Coutu Group Inc (PJC.A.TO) and Qualcomm Inc (QCOM). However, they both have high dividend growth rate (15.3% and 13.66% respectively), so I am not too concerned about the current low yield.
  • Wells Fargo & Co (WFC) saw a dividend cut during the financial crisis which made it drop below the 0% DGR line. However, WFC has started raising its dividends again, so I expect that to start moving up.

Overall, I am happy with the layout of the stocks I hold. In addition, I hold funds which are high yielders providing me with more income currently which I use to reinvest into my stock holdings.

 
What do you think of this representation? I think visually it provides me a viewpoint akin to a birds eyeview for my portfolio.
 
Full Disclosure: Long all equities mentioned here. My full list of holdings is available here.

Chatter Around the World – 33

Chatter Around the World is a weekly link update of economics, investing, dividends and personal finance articles that have caught my eye. In these weekly updates, I also capture my blog updates and news related to my holdings.

New Blog Posts

Let dive into the links that caught my attention this week.

Updates from My Portfolio Holdings

General Reads

Dividend Reads

 

Have a wonderful weekend.

Recent Buy – Rogers Communications Inc (RCI) (RCI.B)

Rogers Communications Inc
I initiated a new position in Rogers Communications, Inc (NYSE: RCI, TSE: RCI.B). Rogers is a diversified communications and media company and together with BCE Inc and Telus Corp forms The Big-3. Rogers is Canada’s largest provider of wireless and data communications services and also one of the leading providers of cable television, high-speed internet and telephony services.

Corporate Profile (from FinViz):

Rogers Communications Inc. operates as a communications and media company in Canada. The company’s Wireless segment offers voice and high-speed data services, as well mobile devices and accessories. It markets its products and services under the Rogers, Fido, and chatr brands. Its Cable segment offers cable television, high-speed Internet access, and cable telephony services. As at December 31, 2012, this segment had 2.2 million television subscribers; and 1.9 million high-speed Internet subscribers, as well as provided home phone services to approximately 1.1 million customers. It also offers a digital video, including a range of television programming and features, such as HDTV; Internet services with multiple tiers of high-speed broadband. This segment provides its products through stores and e-business Websites. The company’s Business Solutions segment provides wired telephony, data networking, and Internet protocol (IP) services for Canadian businesses and governments, as well as to other telecommunications providers on wholesale basis. This segment offers voice, data, IP, and ethernet solutions to small, medium, and large businesses; governments; and financial institutions, as well as provides a multi-service suite of services over high speed fiber, cable, and wireless network. Its Media segment offers television and radio broadcasting, televised shopping, sports entertainment, publishing, and digital media. It operates 55 radio stations across Canada; various television properties, including the City network, 5 multicultural OMNI stations, Sportsnet, specialty sports television services, and various other specialty channels; nationally televised shopping service, The Shopping Channel; the Toronto Blue Jays Baseball Club; Rogers Centre, a sports and entertainment facility; and approximately 50 consumer magazines, and trade and professional publications. The company was founded in 1920 and is headquartered in Toronto, Canada.

Recent Buy Decision:

My analysis entitled Canadian Telecom Oligopoly Provides Sustainable Dividend Growth delves deeper into the stronghold of The Big-3. Rogers already dominates the wireless market with a market share of approximately 35% of Canada’s wireless subscribers. With the acquisition of MLSE in 2012 and a 12-year broadcast and multimedia deal with NHL in 2013, Rogers has been expanding its media segment extensively, which in-turn provides richer content and support for the company’s cable business. Going forward in 2014, the big news seems to be Rogers preparing to launch an online streaming service that would compete with Netflix (NFLX). Rogers Communications Inc is a component of the S&P/TSX 60 index and has been paying dividends since 2000. Rogers has raised dividends 9 years in a year with a 5-yr dividend growth rate (DGR) of 14.7%.
Yesterday’s fourth quarter results release showed that the profits dropped on a decline in wireless revenue due to lower-priced roaming plans and simplified sharing packages that cut into revenue growth. I am not too concerned with this and see the 5% drop in share price as a buying opportunity, in what is a short-term stumble with Rogers retaining its customers amid falling wireless rate plans across the industry.
Rogers announced that it will be raising its dividends by 5% from an annual dividend of $.174 to $1.83. In addition, Rogers has authorized a renewal of the share buyback program for the purchase of $500M of stock for another one-year period.

Risks:

The biggest risk for Rogers is an entry of new wireless service providers in Canada. The Federal government wants to promote competition and the entry of any new service provider would result in lost market share. This, for now, seems unlikely as Verizon Communications (VZ) and AT&T (T) in 2013 decided not to enter the market seeing that the market could not support a fourth player.
On the cable front, consumers have also started cutting the cord and shedding their cable services to move to online content instead, which could see challenges in Rogers’ cable segment. But this is where Rogers plans to target the consumers with the online streaming service. Rogers, being a cable and internet service provider, already has an advantage and is rumored to promote its own service so that customers do not have to worry about bandwidth caps. This could possibly backfire on Rogers as the industry observers are crying foul and see an antitrust case in the making.
A summary of the stock:

  • Symbol: TSE: RCI.B (also trades at NYSE: RCI)
  • Quote: $43.28
  • 52-week Range: $40.18 – $52.75
  • P/E: 11.93
  • Yield: 4.22% (after yesterday’s dividend increase)
  • 5-yr average yield: 3.4%
  • 5-yr DGR: 14.7%
  • Graham Number: 26.96
  • Chowder Rule: 18.7
Full Disclosure: I am long RCI.B and BCE. My full list of holdings can be found here.

Thomson Reuters Corp (TRI) Dividend Increase

Thomson Reuters Corp (TRI) announced that it will be raising its dividends by 1.54%, an increase of annually from $1.30 to $1.32 (on the U.S listed security, NYSE: TRI). A quarterly dividend of $0.33 is payable on Mar 17, 2014 to common shareholders of record as of Feb 24, 2014. This dividend increase marks the 21st consecutive annual dividend increase by the company.

In 2013, the company returned approximately $400M to shareholders through repurchase of approximately 10.9M shares. Approx $300M of these repurchase in the fourth quarter of 2013 were part of the company’s previously announced plans to repurchase up to $1B of its shares by the end of 2014.