Earlier in May, my Dividend Growth Stock of the Month was Southern (SO). Southern is a major utility serving 4 Southeastern states. It has increased its dividend for 15 straight years, including 2016. It yields about 4.5%.
In the article, I stated that I was considering buying Southern for my Dividend Growth Portfolio, and that I wanted to do so before the stock’s ex-dividend date on May 12. That would ensure that I got the next dividend, which had already been declared but not yet paid.
My decision came fast. I bought it on the same day that the article was published, May 3.
I funded the purchase from two sources.
• Accumulated dividends. I collect dividends, and when they reach $1,000, I reinvest them. I had more than $900 in accumulated cash after receiving a $111 payout from AT&T (T) the day before.
• Proceeds from a sale that I made the same day. Shaw Communications (SJR), a Canadian company, had frozen its dividend. After investigating it, I decided that swapping it for Southern would help my portfolio over the long term. So I sold Shaw.
Here is how the transaction came down: First I entered an order to sell Shaw. The order was executed immediately. I sold 87 shares and netted $1,593 after the commission and currency conversion on the value of the shares.
I combined the accumulated dividends with most of the proceeds of the sale of Shaw.
The purchase of Southern cost $2,287 total. I had a little over $200 left over, which remains in cash in the account.
How do the two transactions affect my dividend flow?
They result in an immediate but minor improvement.
Here are the details:
Shaw was paying monthly payments of CAD $0.0988.
So the annual dividend was $0.0988 x 12 = CAD $1.1856. Multiply that by the 87 shares I owned results in CAD $103.15. That’s the total annual income that I was receiving from Shaw.
Since Shaw’s a Canadian company, the dividends were subject to foreign exchange rates. On the day that I made the sale, the exchange rate was 1.00 Canadian dollar = 0.79 US dollar. So the total CAD $103.15 converts to US $81.49. That was the annual dividend flow from Shaw in US dollars.
After the dividend increase that it just announced, Southern will pay $0.56 per quarter beginning with the next payment. I will receive that payment, because I bought before the ex-dividend date. Annualized, the dividend is $2.24 per share.
Since I bought 45 shares, the total annual payout into my portfolio will be $2.24 x 45 = $100.80.
So the bottom line is that in the next 12 months, I will receive $19 more from Southern than I would have received from Shaw. That’s not much, but in Southern, I have a company that is almost certain to increase its dividend every year. Shaw’s dividend was frozen.
When I update my Dividend Growth Portfolio at the end of the month, Shaw will be gone, and Southern will account for about 2.5% of the portfolio. The number of positions remains at 18, with Southern replacing Shaw.
— Dave Van Knapp
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