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The Dividend Champions spreadsheet and PDF have been updated through 5/31/11 and are available here. Note that all references to Champions mean companies that have paid higher dividends for at least 25 straight years; Contenders have streaks of 10-24 years; Challengers have streaks of 5-9 years.

Anticipating Dividend Increases

After I recently modified a series of articles about dividend increases that were expected in the near future from a monthly to a twice-monthly schedule (and extended the “forward look” from the next month to the next 10 weeks), I wondered about the possible seasonality of such increases. It appeared that the number of increases during the summer was lower than what I had seen earlier in the year.

As a reminder, I should state that I believe the vast majority of companies with long streaks of increasing dividends tend to boost their payouts about the same time each year. During the months of February and March, for example, 63 of 69 expected increases came to fruition, or 91%, and that trend has been repeated in subsequent months.

So, although there are no guarantees that a specific company will declare an increase at the same time each year, the tendency to do so appears to be a strong one. Shareholders of 3M Company (MMM), for example, have enjoyed increased dividends on or about March 12 for over 50 years, and such stalwarts as Johnson & Johnson (JNJ), PepsiCo (PEP), and Procter & Gamble (PG) have followed suit in the following couple of months, whereas owners of Aqua America (WTR) generally expect an increased dividend to be paid on or about December 1.

Logically, if a majority of companies end their fiscal year on December 31, it would seem reasonable that they would declare dividend increases in the first quarter of the following year. Since the year-end “earnings season” generally runs from mid-January to mid-February, corporations are likely to follow the announcement of higher earnings by declaring dividend increases in the first quarter, making their shareholders a bit happier heading into “proxy season,” when those companies hold their annual meetings.

The vast majority of those meetings take place in April and May, so the dividend increases are likely to come in March and April. Keep in mind that, before the “computer age,” companies took a bit longer to finalize their year-end reports, so some may still be following older timing patterns. As a first step in examining possible seasonality for dividend increases, I summarized the Dividend Champions, Contenders, and Challengers by their Fiscal Year-ends:

Fiscal Year End

Number of Companies

Month

Champ

Cont

Chall

Total

PCT

Jan.

4

3

5

12

2.7

Feb.

0

1

2

3

0.7

Mar.

1

2

7

10

2.2

Apr.

3

2

3

8

1.8

May

2

0

5

7

1.6

Jun.

8

5

11

24

5.3

Jul.

2

0

5

7

1.6

Aug.

2

2

6

10

2.2

Sep.

7

9

7

23

5.1

Oct.

6

2

4

12

2.7

Nov.

3

0

1

4

0.9

Dec.

63

121

145

329

73.3

Total

101

147

201

449

100.0

Number of Companies

Quarter

Champ

Cont

Chall

Total

PCT

1st

5

6

14

25

5.6

2nd

13

7

19

39

8.7

3rd

11

11

18

40

8.9

4th

72

123

150

345

76.8

Total

101

147

201

449

100.0

As expected, more than 70% observe a December fiscal year, so I would expect a preponderance of dividend increases to take place early in the next year. June and September fiscal years trail far behind, with just over 5% of the companies each.

Seasonality Confirmed?

I next totaled the companies by month and by quarter, using the Ex-Dividend Date of the latest increases. Although not as heavily concentrated as the Fiscal Year-ends, there does appear to be a distinct weighting toward the first five months of the year, and the first two quarters each had 31.0% of the increases.

However, as you can see in the table below, I added an adjusting section. The reason I did so was because I am now notating companies that have increased their dividend more than once in the current year. Most of these are MLPs (Master Limited Partnerships), many of which have followed a pattern of increasing their distributions each quarter.

In fact, more than two dozen MLPs concentrate their quarterly payments (and increases) in the months of February, May, August, and November. So, although their latest increase may have occurred in May, their first increase of 2011 came in February, which would shift the seasonality when viewed on an adjusted basis. If this analysis were carried out to the end of the year, we would see the same effect two more times (roughly in August and November), but it wouldn't change the fact that their initial increase for the year took place in February.

Dividend Increases by Ex-Dividend Date

Number of Companies

Adj.

Mo.

Champ

Cont

Chall

Total

PCT

Adj.

Total

PCT

Jan.

7

12

9

28

6.2

8

36

8.0

Feb.

16

18

19

53

11.8

17

70

15.6

Mar.

15

17

26

58

12.9

0

58

12.9

Apr.

5

12

17

34

7.6

-8

26

5.8

May

12

22

37

71

15.8

-17

54

12.0

Jun.

3

11

20

34

7.6

-1

33

7.3

Jul.

4

6

4

14

3.1

14

3.1

Aug.

8

9

17

34

7.6

34

7.6

Sep.

6

8

16

30

6.7

30

6.7

Oct.

5

10

12

27

6.0

27

6.0

Nov.

8

8

12

28

6.2

28

6.2

Dec.

12

14

12

38

8.5

1

39

8.7

Total

101

147

201

449

100.0

0

449

100.0

Number of Companies

Adj.

Qtr

Champ

Cont

Chall

Total

PCT

Adj.

Total

PCT

1st

38

47

54

139

31.0

25

164

36.5

2nd

20

45

74

139

31.0

-26

113

25.2

3rd

18

23

37

78

17.4

0

78

17.4

4th

25

32

36

93

20.7

1

94

20.9

Total

101

147

201

449

100.0

0

449

100.0

To confirm these findings, I also summarized the companies by Dividend Pay Date, which typically follows the Ex-Dividend Date by several weeks. So what we might expect to see is a slight shift to the following months, and that does seem to be the case to a slight degree. It's also worth noting that companies announce increases anywhere from two to six weeks before the Ex-Dividend Date, but I have noticed companies making their announcements from as little as two days to more than two months before they go Ex-Dividend. So the seasonality of the announcements can be expected to precede that of Ex-Dividend or Pay Dates by a month or two, in general.

Dividend Increases by Pay Date

Number of Companies

Adj.

Month

Champ

Cont

Chall

Total

PCT

Adj.

Total

PCT

Jan.

7

11

12

30

6.7

4

34

7.6

Feb.

9

11

13

33

7.3

20

53

11.8

Mar.

19

23

28

70

15.6

3

73

16.3

Apr.

9

13

16

38

8.5

-2

36

8.0

May

6

13

34

53

11.8

-20

33

7.3

Jun.

13

19

21

53

11.8

-3

50

11.1

Jul.

3

10

13

26

5.8

-2

24

5.3

Aug.

3

8

8

19

4.2

19

4.2

Sep.

8

9

22

39

8.7

39

8.7

Oct.

9

9

10

28

6.2

28

6.2

Nov.

2

9

12

23

5.1

23

5.1

Dec.

13

12

12

37

8.2

37

8.2

Total

101

147

201

449

100.0

0

449

100.0

Number of Companies

Adj.

Qtr

Champ

Cont

Chall

Total

PCT

Adj.

Total

PCT

1st

35

45

53

133

29.6

27

160

35.6

2nd

28

45

71

144

32.1

-25

119

26.5

3rd

14

27

43

84

18.7

-2

82

18.3

4th

24

30

34

88

19.6

0

88

19.6

Total

101

147

201

449

100.0

0

449

100.0


Conclusion

Although this analysis seems to confirm that springtime is the season for dividend increases – at least, among companies with long histories of annual increases – there are still plenty of high-quality companies, like those mentioned above, that reward their shareholders with higher payouts throughout the year. Of course, there are other companies that are now adopting patterns of increasing dividends, but I think the best evidence of seasonality is provided by the 449 companies that have paid higher amounts for at least five straight years.

What we can probably assume is that the heavier dividend increase activity that takes place in the Spring will trigger a corresponding increase in media attention. I believe that we saw that take place this year, boosted perhaps by an additional focus on investment strategies that had worked well in the wake of the 2009 market bottom. As SA Contributor David Van Knapp recently noted, earnings increases are the common parent of both dividend increases and stock price appreciation, and many writers and analysts are now taking note of the companies that generate both on a regular basis.

Disclosure: I am long MMM, JNJ, PEP, PG, WTR.

Source: Do Dividend Increases Have Seasonality?