I have already mentioned selling off the majority of my stake in INTC. You can find that post here. That left me with around $9k in capital to deploy. Since INTC is paying out .225 in quarterly dividends, the 300 shares I sold dropped my dividend income by $270.
I have put $7k of that money to work and the remaining went to replace my A/C coil that was leaking freon. The A/C system in my house is 20 years old so I was expecting something to go wrong soon anyways.
$7k went into these two purchases:
1.) I purchased 120 more shares of VOD for $33.48/share. VOD has a dividend payment in February with a larger special dividend payment in August. Assuming no increase in the Feb. payment, shares are carrying a forward yield of 5.5%.
2.) I also purchased 80 shares of AT&T (T) in my Motif account. With commissions of only $4.95 I decided to add the shares to this account. You can find my Motif review here.
These combined purchases will add $368.32/year to my dividend income. So I’ve increased my income by over $100 net after the INTC sell and I didn’t use all the proceeds.
I’ve been wanting to add a little more exposure to the Telecom sector. I also wanted to bring up my weight in VOD to what I have invested in VZ. Due to the reverse split, my VOD cost basis is still much higher. I mentioned how my cost basis was calculated here.
Here’s a look at VOD’s revenue distribution from their annual report. I like the diversity and international exposure I get even after the sell of their Verizon Wireless stake.
T was a brand new position. I don’t mind a few “utility” like companies in my portfolio. These companies provide a large dividend to start but offer much slower growth. What better company is there to compliment my VZ holding than T?
Here’s a fun exercise. Look how much time it would take a growth company, Visa (V) , to produce the same cumulative dividends as T. This is just a simple exercise and there is no adjustment for inflation. I’m assuming $1,000 is invested into each stock. T has a starting yield of 5.2% with 2.5% growth (their 5-year CAGR is 2.4%) and V has a starting yield of 0.8% with 40% growth (their 5-year CAGR is 45%). I don’t believe Visa can sustain a growth rate this high for the long-term but it’s fun to look at the results.
It takes Visa 12 years to surpass the cumulative dividends produced by T assuming Visa can sustain a 40% dividend growth rate. It would also take longer than that with inflation taken into account.
Now let’s change Visa’s dividend growth rate to 25% which is still high and include inflation of 3%. Here are the new results:
It takes 19 years for V to produce more total inflation-adjusted dividends than AT&T.
I believe a good mix of higher yielders with slower growth and lower yielders with higher growth can make for a great balanced portfolio.
AAI,
I love it when you talk math. I think it’s a good idea to throw out examples to get readers thinking on their own about “what-if” investing situations. Next time we do investigation on a stock, “a-ha! Maybe I should check X, Y, Z!”
Thanks,
WE#1
Wallet Engineer #1 recently posted…Using 0% APR to Your Benefit
Hi Wallet,
Yeah, I’m a little bit of a math nerd and I love spreadsheets! I need to post more of my computations since people seem interested in them. I just added an inflation adjusted example to the original article since I was curious.
Thanks for stopping by!
AAI,
I love the T purchase as it is my biggest holding. I know T has a low dividend growth rate, but if you DRIP the dividends the income growth is actually quite impressive as your share count will become very large over time. It would be interesting to see a hypothetical with reinvested dividends….V may never catch T.
MDP
My Dividend Pipeline recently posted…Weekly Sharebuilder Purchases
Hi MDP,
Thanks, I’m happy to be a fellow shareholder with you. You’re right, this doesn’t count reinvested dividends. I may have to play around with another scenario to see how that can change things up. A higher growth rate will always eventually surpass a company with a lower one but if it takes 30 years then that doesn’t help me much. It’s also impossible to predict higher growth rates for long periods so there’s a lot of uncertainty there.
Take care!
Thanks for sharing the dividend growth charts. It really puts into perspective the question every dividend investor asks at some point… do I want current high yield or future high dividend growth. As you said a balance of the two is probably ideal.
DivHut recently posted…Dividend Stocks To Quench Your Thirst
DivHut,
That’s a question that will keep being asked. It really has to do with the time-frame you have in mind. I do think a combination of dividend growth rates and starting yields is the best bet.
Cheers!
I have held both VOD and T for a while and I am happy with both. I was looking at adding to one of those positions once some dividends pile up.
I am curious how the purchase of DirectTV will affect T dividend growth rate.
Air conditioners… I had a tech come out and do my summer check up and I may be looking at replacing the HVAC system sooner or later 😉 The joys of owning a home I suppose!
Take care!
ILG recently posted…Loyal3 Purchase: Target
Hi ILG,
I like VOD. They obviously made at least one right decision in buying a piece of Verizon to begin with. I’m not a big fan of getting just 2 dividends a year but that’s not going to influence my purchasing decision.
Yeah, I should have mentioned that. I love DTV and that’s one of the reasons I wanted to add T to my portfolio.
Yeah, I found a good A/C guy that I can trust. He ended up saving me a lot since the previous company said I needed a whole new system.
Thanks for stopping by!
AAI,
I love the comparison of T and V. I have been eyeing VOD myself and may purchase some shares here soon.
Take Care and keep up the great work.
Mr. Stock Fox recently posted…Taking Profits, SLW, CVX, BTG
Hi Mr. Stock Fox,
Thanks. I think it’s good to do some comparisons sometimes. It can give you a new perspective. I hope we become fellow shareholders some day!
Thanks for stopping by!
Vod throws me off with that irregular dividend and jumpy share price but the yield is great and its a good business. Its a good diversified pick in the laggard european market. Good potential to run up when Europe picks up again.
As far as Visa is concerned. The dividend is just too low and it will take quite a while before the yield becomes respectable but Visa is more of a growth stock than a dividend stock. I bought Visa not for the div growth rate but the potential share price growth instead.
Asset Grinder recently posted…New Buy $AGU Agrium. Yeah you never heard of them!
Hi Asset Grinder,
The thing is if you have enough irregular dividends combined with regular payers then you tend to get pretty regular monthly amounts you can count on. So i’m not too worried about that. Yeah, the estimates for VOD are low so it won’t take much to beat them the next few years.
I own V and agree with you. They are a growth stock that happens to pay a regular increasing dividend. This could change over time as Visa gets much larger. I love a mix of both though.
Take care!
I’ve been looking at T myself and need to find out more about the DirectTV purchase and how that will change things going forward. Eventually I want to build up VZ as well. I think the major telco’s are offering some better value than the utilities for essentially the same business model and similar growth profiles. Although the telco’s probably have a bit more of an advantage when it comes to growth.
JC @ Passive-Income-Pursuit.com recently posted…Short Term Price Movements Are Not Indicative of Value
JC,
I’m excited to see the DTV purchase play out. I think it will be a good source of new growth. I’m not planning for any more telecom stocks at this point, just building on the three that I have; T, VZ and VOD. I do like the telco’s over a traditional utility and agree they most likely will continue with higher growth.
Take care!
I love T. Nice to see the differencd between high growth vs high yield
Hi DutchDividend,
It’s going to be a question that won’t go away. It all depends on your time-frame for investment. The longer you have to retirement, the more higher-growth companies you can buy and let compounding work its magic.
You have a nice portfolio started I see. Congrats on that and keep it up. Those dividends will just keep growing!
Cheers!
I have both of these on my watchlist but haven’t pulled the trigger yet. Maybe will if T ever goes back to low 30’s. Have you ever looked at TeliaSonera? They also operate in telecom business. TeliaSonera offers a current yield of 6,2 % and a dividend growth rate of 14 % since 2009 (they cut the dividend in 2009 and are only OTC listed in the US though).
And thanks for the interesting calculations! Because I’m investing with leverage I’m more prone to high yielding DGI stocks. These calculations made me feel more relieved with my strategy. I’ll keep waiting for your reinvested dividends calculations! 🙂
Hope you have a nice week!
Leveraged DGI recently posted…2 option trades
Leveraged DGI,
I’d love for T to hit the low 30’s. I’d be adding more shares myself.
I’ve never looked at TeliaSonera, but upon first glance I noticed they were based out of Sweden so dividends would be taxed at a high 30% rate. They are still worth looking into further, thanks for pointing them out.
I’m glad you liked the calculations. Yes, I may just write up a post that covers this topic and include examples for reinvested dividends.
I also noticed you sold off more WAG. I think the valuation is also a little high but don’t know what I’d replace it with. In addition I’d have to pay taxes on the profits so I’ll probably keep holding for now.
I’ll have to stop by and check out some of your options trades also.
Thanks and you as well!
I actually have a big loss coming from my Nordic portfolio so I don’t mind selling some overvalued shares. Actually I probably wouldn’t be selling either if I didn’t have any losses to utilize.
But if you are low on telecoms you might consider selling some WAG and adding to T. However there is no point in selling high quality business even though it is a bit richly valued at the moment.
I think that some better values can be found from the Nordic markets at the moment. I’m consider adding to my positions in Seadrill, TeliaSonera or Nokian Tyres if prices go down a bit.
There probably won’t be much option trading going on since I can’t set option to US markets. I’ll just keep selling calls/puts to AZN and SDRL.
Thank you for visiting my blog! It really feels great because I have been following your blog for years and you are one of my DGI ‘idols’ 😀
Best of luck!
Leveraged DGI recently posted…My dividend income journey
IF I did sell one of my positions, it would probably be WAG. I think the price has gotten ahead of itself. However, I’d still owe a lot of taxes so at this point I don’t want to sell off good businesses just because I think they are slightly overvalued, especially if I don’t have a better replacement at the time.
Thanks for the kind words and I hope you keep stopping by to comment!
Hello,
I have checked VOD as potential purchase, however I see the following risks with it:
Negative growth is forecasted by analysts (According to Reuters)
Free cash flow (TTM) is negative and it is less than 5 year average
Cash Return on Capital Employed is less than 17% as I’m looking for.
Cash Return on Capital Employed last year is lower than 5 year average
It looks that VOD had bad year recently, so before buying, there is big need to analyze deeper for it.
T has also some risks:
Free Cash Flow above 50%
Free Cash Flow TTM lower than 5 years average
Free Cash Payout TTM above 5 year average
Cash Return on Capital Employed last year is lower than 5 year average and below 17%
Long-term debt to assets above 5 year average
It looks that T is not better than VOD as well.
Based on my analysis I wouldn’t buy these companies unless it is needed for portfolio diversification.
P.S. For T, recent purchase should have big impact, so it might be reasonable to buy it now, but it should be noted that it is risky investment at the moment.
Andrius,
The sell of the 40% stake in Verizon Wireless may make some of these numbers off from the norm. They have a low D/E of less than .40 and a solid cash position. They have a nice diversified European portfolio that I’m interested in getting exposure to meanwhile they are making some acquisitions. While their growth may lag for the short-term, I think they are setting themselves up for the long-term. I expect their price to recover along with the rest of Europe. There is certainly some risk here and I understand your position. I view T as one of the safer “high” dividend growth companies. I don’t expect either company to have stellar growth but I know I can rely on a consistent and increasing dividend. If either company encounters more weakness, I’ll gladly buy more shares.
Everyone has their own risk tolerances and that’s why it’s important to stick to your plan and do your due diligence.
I appreciate you stopping by to comment.
Hi,
Thanks for comment.
Are You happy with negative earnings growth for VOD? Or do You think, that analysts opinion might be wrong on negative growth?
For other issues I agree on your comments, but still not clear if You are looking for earning growth or not?
Andrius,
I don’t think anyone could be happy with negative earnings growth, right? I’m just thinking long-term and not short-term. I expect a few bumps in the road in earnings but I am still pretty confident they can execute in the long-term (if buying VZ Wireless to begin with was any indication). I’ll be watching their acquisitions and wait to see what they do with all the cash on hand.
The only way the dividends can keep growing is with earnings growth as well, so yes I am looking for companies that can grow earnings over the long-term (10+ years).
Take care
Extremely interesting stuff. If you would share the spreadsheets you used, that would be very helpful and naturally most appreciated. Hope you get around to it.
Never really thought about cumulative dividends, just always calculated yield-on-cost type comparisons. Fascinating new level of research.
Hi Sackie,
Many people seem interested so I plan on making a new post addressing dividend yield versus dividend growth and creating a spreadsheet that I’ll share. The spreadsheet above only took me about 5 minutes so I’ll clean up a better one and make it available.
Thanks for stopping by and stay tuned!
I like the AT&T buy…our family has owned AT&T for several years and even without any huge dividend growth, we still love the stock. From our experience, AT&T is a very stable company and thus stable stock. Some may even say it is a boring stock. But everyone needs a few boring stocks in their portfolio. 🙂 And it’s even better when the boring stock pays you 5%+ in dividends.
Wishing you continued success in your journey! AFFJ
A Frugal Family’s Journey recently posted…2-YEAR Collection of Stock Analyses!
Hi FFJ,
Thanks and I agree with you. There’s nothing wrong with a boring stock that continue to provide more income each year. 5%+ is indeed a nice payout!
Thanks again and take care!