As a way of tracking my progress towards financial freedom I total up the dividends I received each month. The end goal is to have my dividends cover my expenses. This is a long term goal, so I have a lot of years to go, but I find it encouraging to see my dividend income steadily rise over time. This reminds me that I’m on the right track and to stick with it.
My dividend income for January 2014:
Canadian Dividend Income
Total Canadian Dividend Income – $204.22
US Dividend Income
- Medtronic – $11.48
- PepsiCo – $65.71
- Sysco – $23.20
Total US Dividend Income – $100.39
Two companies announced dividend increases recently and as a result paid me more this month.
- Telus (TSE:T Trend Analysis) increased their quarterly dividend from $0.34 to $0.36 which is a 5.9% increase. This is in-line with their plan to increase dividends twice a year for an annual average dividend growth rate of around 10% until 2016. I expect to hear about another dividend increase in May 2014.
- Sysco increased their quarterly dividend from $0.28 to $0.29 which is a 3.6% increase. It’s not the 8% I’m trying for, but it’s better than nothing.
I did some digging on yahoo finance and morningstar to see if I could get a quick picture of the dividend sustainability and future growth prospects for Sysco (SYY Trend Analysis). I came up with the following:
- Yahoo Finance Info
- Payout ratio is currently 66%.
- Earnings growth for the past 5 years was 1.3% per annum.
- Analysts are estimating 7.55% annual growth for the next five years.
- Morningstar Info
- The payout ratio has increased from 36.5% (2004-06) to 66.3% (2013-06) over the past decade.
- Sysco has a wide moat rating
- They are forecasting sales growth of 5.2% for fiscal 2014. Longer term they are forecasting “that Sysco will benefit as consumer spending picks up, resulting in just north of 4% annual sales growth through fiscal 2023.”
Sysco has been increasing their quarterly dividend by a cent each year since 2009, which means dividend growth since then has been around the 3-4% mark annually. Dividend growth prior to 2009 was quite good, but it was fuelled by an increasing payout ratio. At 66% I don’t think the company wants a much higher payout ratio, so I think future dividend growth will be limited to EPS growth or slightly lower. The good news is that while the past 5 years of growth haven’t been that great it looks like analysts are estimating better growth prospects going forward. Yahoo is estimating 7.55% growth for the next 5 years, and Morningstar is estimated sales growth of 4% through 2023.
Sales growth may see low at 4%, but a company can improve EPS growth above sales growth by becoming more efficient, and buying back shares. This would result in higher EPS growth than sales growth. Sysco has a wide moat and I’m happy to hold onto my shares for now, with the expectation that dividend growth will improve in the future.
All-in-all I’m happy with this month’s dividend income. I sold my Sunlife shares recently and I’ll be looking to replace this lost dividend income, but I still need prices to drop below my target buy prices.
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