How Boring Investing Can Fatten Your Wallet

The reward for holding on to solid, dividend-growing companies may be cold, hard cash.

Apr 21, 2014 at 6:30PM

In last week's update, the real-money Inflation-Protected Income Growth portfolio was awaiting dividend news from pipeline giant Kinder Morgan (NYSE:KMI). Sure enough, Kinder Morgan delivered the message the portfolio hoped to hear: an increased dividend backed by strong performance from its key pipelines. 

After the bitterly cold winter and the increase in natural-gas demand that came along with it, news of Kinder Morgan's success shouldn't be all that shocking. After all, it is the largest natural-gas pipeline company in North America; the greater the demand for natural gas, the stronger its business should be.

How good was it?
Kinder Morgan increased its dividend to $0.42 per share, $0.01 ahead of the previous quarter and $0.04 ahead of the same quarter in 2013. Equally important, the company's "Cash Available per Average Share Outstanding" increased to $0.55, improving Kinder Morgan's coverage ratio. That makes it more likely that Kinder Morgan will reach its $1.72-per-share dividend target for 2014.

By increasing its dividend, Kinder Morgan joins fellow iPIG picks Raytheon (NYSE:RTN), Air Products and Chemicals (NYSE:APD), and Hasbro (NASDAQ:HAS) in paying higher dividends in May than in February. Texas Instruments (NASDAQ:TXN), the other iPIG pick expected to deliver a dividend in May, will pay out $0.30 per share, consistent with its February level but ahead of its May 2013 dividend of $0.28.

With that news, every company expected to pay a dividend to the iPIG portfolio in May will top last year's level. That goes a long way toward helping the portfolio reach its primary objective of an income stream that increases at least as fast as inflation. That's an incredible reward for shareholders who simply held on through the recent volatility.

Where the growth comes from
Raytheon increased its dividends to $0.55 per share from $0.50 with its recent announcement. The company credited its decent financial position and dedication to a balanced capital deployment plan for its ability to increase its payout by 10%. In other words, Raytheon continues to do well operationally and has a solid balance sheet, so it expects to generate enough cash to distribute more to its shareholders.

Air Products and Chemicals noted that its dividend increase to $0.77 from $0.71 reflected the company's 32nd consecutive year of such hikes. The company indicated that the increase reflects its commitment to return value to its stockholders. With a 32-year history of dividend increases, Air Products and Chemicals has demonstrated not only that commitment to returning value, but to creating it as well. After all, the only way to sustainably increase a dividend is to earn enough to pay more.

Hasbro's increase to $0.43 from $0.40 came as the company struggled with another weak holiday season. Still, back out 2013 restructuring charges, and Hasbro's results would have outperformed its 2012 levels, justifying the increase. Indeed, Hasbro said the cost savings from its restructuring enabled the dividend increase.

Likewise, when Texas Instruments in September increased its dividend to $0.30 from $0.28, the company credited its capital management strategy for the ability to provide that hike, its second in 2013. Texas Instruments has been winding down uncompetitive units such as its wireless business as it focuses on the more profitable parts of its operation. That strategy seems to be paying off for shareholders, as evidenced by a dividend payment topping last year's levels.

Get rewarded for owning stock
The iPIG portfolio actively seeks out companies with a history of dividend increases that also look capable of continuing to increase their payouts over time. There are no guarantees in investing, but months like May is shaping up to be for the portfolio from a dividend perspective certainly do provide tangible rewards for the risks investors take by buying stock.

Put together an entire portfolio of companies with similar characteristics and you may wind up with something similar to the iPIG portfolio. That portfolio finished last Thursday's holiday-shortened trading week looking like this:

Company Name

Purchase Date

Total Investment (including commissions)

Current Value
April 17, 2014

Current Yield
April 17, 2014

United Technologies (NYSE:UTX)

Dec. 10, 2012

$1,464.82

$2,134.26

1.99%

Teva Pharmaceutical (NYSE:TEVA)

Dec. 12, 2012

$1,519.40

$1,932.30

2.51%

J.M. Smucker (NYSE:SJM)

Dec. 13, 2012

$1,483.45

$1,643.90

2.40%

Genuine Parts (NYSE:GPC)

Dec. 21, 2012

$1,476.47

$2,008.36

2.63%

Mine Safety Appliances (NYSE:MSA)

Dec. 21, 2012

$1,504.96

$2,034.00

2.12%

Microsoft (NASDAQ:MSFT)

Dec. 26, 2012

$1,499.15

$2,200.55

2.80%

Hasbro

Dec. 28, 2012

$1,520.60

$2,348.23

3.15%

United Parcel Service (NYSE:UPS)

Jan. 2, 2013

$1,524.00

$1,960.00

2.73%

Walgreen (NASDAQ:WBA)

Jan. 4, 2013

$1,501.80

$2,670.00

1.89%

Texas Instruments 

Jan. 7, 2013

$1,515.70

$2,154.01

2.62%

Union Pacific (NYSE:UNP)

Jan. 22, 2013

$805.42

$1,137.54

1.92%

CSX (NASDAQ:CSX)

Jan. 22, 2013

$712.50

$957.10

2.27%

McDonald's (NYSE:MCD)

Jan. 24, 2013

$1,499.64

$1,604.00

3.23%

Becton, Dickinson (NYSE:BDX)

Jan. 31, 2013

$1,518.64

$2,036.88

1.93%

AFLAC (NYSE:AFL)

Feb. 5, 2013

$1,466.35

$1,702.35

2.35%

Air Products and Chemicals

Feb. 11, 2013

$1,510.99

$2,004.98

2.61%

Raytheon

Feb. 22, 2013

$1,473.91

$2,703.51

2.42%

Emerson Electric (NYSE:EMR)

April 3, 2013

$1,548.12

$1,916.32

2.51%

Wells Fargo (NYSE:WFC)

May 30, 2013

$1,525.48

$1,810.41

2.45%

Kinder Morgan

June 21, 2013

$1,518.37

$1,418.34

4.97%

Scotts Miracle-Gro (NYSE:SMG)

Jan. 3, 2014

$1,974.68

$1,908.16

2.93%

Cash

   

$999.88

 

Total Portfolio

   

$41,285.08

 

Data from the iPIG portfolio brokerage account, as of April 17, 2014.

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To follow the IPIG portfolio as buy and sell decisions are made, watch Chuck's article feed by clicking here. To join The Motley Fool's free discussion board dedicated to the IPIG portfolio, simply click here.

Chuck Saletta owns shares of Aflac, Air Products & Chemicals, Becton Dickinson, CSX, Emerson Electric Co., Genuine Parts Company, Hasbro, J.M. Smucker, Kinder Morgan, McDonald's, Microsoft, Mine Safety Appliances, Scotts Miracle-Gro, Raytheon Company, Teva Pharmaceutical Industries, Texas Instruments, Union Pacific, United Parcel Service, United Technologies, Walgreen Company, and Wells Fargo.

The Motley Fool recommends Aflac, Becton Dickinson, Emerson Electric Co., Hasbro, Kinder Morgan, McDonald's, Mine Safety Appliances, Teva Pharmaceutical Industries, United Parcel Service, and Wells Fargo. The Motley Fool owns shares of CSX, Hasbro, Kinder Morgan, McDonald's, Microsoft, Raytheon Company, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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