Friday, February 13, 2015

Cisco Systems and TransCanada Boost Dividends

     A couple years ago, Cisco missed analysts' consensus Q2 estimates, and their stock plunged about 10% that morning. Since I was looking to add an IT component to my portfolio, and large US companies were the best way for me to get that exposure, I left work and walked to the public library in the freezing February cold to buy a stake in Cisco. Cisco is a worldwide leader in networking, and their products and services have transformed the way we communicate and connect. More importantly for a dividend growth investor, after initiating a $0.06 per share dividend in February 2011, the company has went on to raise it yearly, up to $0.21 per share on Wednesday (a 10.5% increase over the last year). The current 2.9% dividend yield is well covered (current payout ratio ~45%), and the company has finally found its way back to growth, chalking up 7% higher revenues in Q215 vs Q214.
     As much as I've enjoyed holding Cisco, my relationship has been much rockier with TransCanada Corporation. Over the last two years, I've continually questioned if I want to hold a company that I don't feel acts in the best interests of its stakeholders or its shareholders. Regarding stakeholders, I'm not convinced the company's pipelines take into consideration the health, safety, and environmental impacts of various communities in their paths. As a shareholder, despite a pronouncement late last year to boost their payout ratio, I think the company has not taken the steps needed to truly enhance shareholder value (i.e. following the Enbridge/US model of selling income generating assets into a Yield Co.). Although I can't complain about the unrealized return I have made on my small TransCanada holding, or the 8.3% dividend hike today, I'm not sure I'll be in this company for the extremely long-haul. 
      My eight dividend raises in 2015 are helping me slowly achieve my goal of boosting my forward dividend income by $1,800 (or about $5/day). Through dividend increases alone, I'm 8.9% of the way to accomplishing my goal. Now if only the North American markets would plunge so I could put some of my monthly contributions to work to buy cheaper stocks... 

3 comments:

  1. Nice boost for the CSCO shares. I used to own that one many, many years ago before a dividend was even paid. It had tremendous growth in the late 90s and really was a great investment. I have since sold and focused more on a DGI strategy with more established long term dividend payers. Thanks for sharing.

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  2. Thank you Keith for sharing your perspective on CSCO. I find it difficult to pick representative companies from the technology sector as part of a DGI strategy. Any recommendations you might have outside of Cisco and Microsoft (my only two current holdings in that sector) would be greatly appreciated.

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  3. To be honest, I'm not really a big fan of tech companies in a long term dividend growth portfolio. If you take a look at my holdings http://divhut.com/portfolio/ you'll see I own no tech at all. That being said, the only other tech company that I see being popular among the DGI community is IBM.

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