An 8% raise you never had to ask for

Good morning. Dividends have a quiet habit that never gets old: money lands in your account on a schedule, in good markets and bad, without you selling a share. And this week, a few of those paychecks just got bigger. Let's start there.

YOU GOT A RAISE

If you own Caterpillar, you just got an 8% raise.

You did nothing but hold the shares, and your income went up.

On June 10 the company lifted its quarterly dividend to $1.63 a share, extending a streak of more than 30 straight years of increases.

That is the beauty of dividend growth: a raise you never had to ask for. And Caterpillar was far from alone.

MORE RAISES THIS WEEK

Four more companies quietly lifted their payouts. Morgan Stanley led with a 15% bump.

Boring companies, quietly handing their owners more. That is the whole strategy in one line.

WHAT MAKES A RAISE LAST

Johnson & Johnson just raised for the 64th year in a row, a 3.1% bump. What lets a streak run that long?

Any company can hand out one raise. Giving one every year for decades is a different animal. It only happens when the business behind the check is sturdy enough to survive whatever the economy throws at it.

Strip away the brand names, and three traits explain it:

• Demand that does not quit. People buy Band-Aids and Tylenol in good times and bad, so revenue barely flinches in a recession.

• Cash flow to spare. The dividend uses only part of the free cash flow, which leaves room to keep raising without strain.

• A fortress balance sheet. It is one of only two AAA-rated companies in America, so debt never forces a painful choice.

None of that guarantees the next raise, and no company owes you one. But those three traits are the exact lens we use to ask whether a paycheck can keep growing.

A long record is history, not a promise. Educational example, not a recommendation to buy.

IN PLAIN ENGLISH

Yield on cost: the number that quietly climbs

Here is a concept that makes those raises even sweeter.

When you buy a stock, the yield you see is measured against today's price. But once you own it, what really matters is the yield on what you paid. Call it your yield on cost.

Say you bought at $50 while the stock paid $1.50 a year. That is a 3% yield. Ten years of raises later it pays $3.00. New buyers still see a yield on today's price. You, though, are earning $3.00 on your original $50, a 6% yield on your cost, and it climbs every time the company raises.

That is why long-term dividend growers can feel like a raise machine. The longer you hold, the higher your personal yield climbs, even when the quoted number barely moves.

Illustrative example with round numbers. General education, not advice.

One quick thing before you go: hit reply and tell me the single thing you most want help with for your retirement income. I read every response, and it shapes what I write.

Your dividends are buying back your time. Spend it well.

Yours,
Tyler Sparks
Editor, Dominating Dividends

Disclosures. Dominating Dividends is a financial publisher, not an investment adviser. We are not registered as an investment adviser, broker-dealer, or investment company with the U.S. Securities and Exchange Commission, FINRA, or any state securities regulator, and we do not hold ourselves out as such. We publish general, impersonal educational commentary under the publisher's exclusion from the definition of investment adviser in Section 202(a)(11)(D) of the Investment Advisers Act of 1940, as recognized in Lowe v. SEC, 472 U.S. 181 (1985).

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