Dividend Increase: CME and MMM

2/4/2016  Been retired for three weeks now and enjoying the free time.  Now back to business.

Two companies announced their dividend increases for the year yesterday, as expected (Dividend Worksheet).

CME Group (CME) continues their impressive streak of being generous to shareholders ever since becoming publicly traded by increasing their dividend yet again, on top of this years special dividend of $2.90.  Check out the history that goes back to 2003 for yourself.  Yesterday the company announced a 20% increase to their dividend payment.  That will boost the quarterly dividend payment to $0.60 per share from the previous $0.50.  The 20% increase is actually higher than I expected.  I have a 10% rate of growth pegged for CME’s dividend for the foreseeable future.  The new dividend is payable March 28, 2016 to shareholders of record March 10, 2016.  This continues their young, yet impressive history and rate of growth on the dividend to 6 years.

I like CME because of their extreme specialty in the derivatives market.  Derivative use will continue to grow as portfolio managers seek to reduce volatility in portfolios.  CME in the past has also acquired CBOT and NYMEX, smaller derivative exchanges.  I have been expecting an acquisition of CBOE to take place for the last couple of year, but that has yet to happen.  I have been long CME since they have gone public.

The payout ratio will be at 60% based on a low earnings estimate of $4.00 for the year.  I would expect an increase for next year as well.

3M Co. (MMM) also announced their dividend increase for the year by 8%, bringing the new quarterly dividend to $1.11 from last years $1.025.  This brings MMM to 99 year of paying uninterrupted dividends and now an impressive 58 years of consecutive dividend increases.  Check out this document for history going back to 1977  MMM Dividend History .  The 8% increase is in line with my expectations.  The new dividend would reflect a 54% payout ration based on consensus earnings estimate of $8.23 for the year.  Their dividend is safe, look for increases to continue.  They also announced a new share buyback program.  This is most likely to lower outstanding shares and help with EPS.

One thing to notice from both companies is the increase is in dividend income is well above my already high inflation rate of 4%.  I like to set a high hurdle to jump over for inflation expectations.  This just adds an added layer for a margin of safety versus using a 2% level.  Basically what I’m saying is I’ll be better off this year than last year from a cash flow standpoint.  I already aggressively monitor spending and work to reducing unnecessary spending.

Dividend growth investing is a great tool to use in early retirement planning.  If you can live off dividends to cover your expenses, the future dividend growth provides a great hedge against inflation.

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