As part of my research into dividend growth stocks, I track the dividend payouts for the components of the S&P High Yield Dividend Aristocrats index. This index consists of stocks that are part of the S&P 1500 index - that's the combination of the S&P 500, S&P Mid Cap 400 and the S&P Small Cap 600 indices - that have increased their regular dividends each year for the last 20 years.
March was a slow month for dividend increase announcements, with only 4 members of the High Yield Dividend Aristocrats index raising their dividends. The pace picks up this month, with 12 companies, including 3 members of the Dow Jones Industrials index scheduled to announce payout increases. Let's take a look at how I did with my predictions from last month:
Air Products (NYSE:APD)
Prediction: 9.9 - 13.6% increase to $3.56 - $3.68
Actual: 6.2% increase to $3.44
Forward yield: 2.39%
Air Products' 34th year of dividend growth is being marked by an increase below its 5-year average of 10.6%. I'm disappointed by the amount of the increase, as Air Products is on track to grow earnings this year by more than 10%.
Colgate Palmolive (NYSE:CL)
Prediction: 0.0 - 5.3% increase to $1.52 - $1.60
Actual: 2.6% increase to $1.56
Forward yield: 2.21%
The manufacturer of worldwide brands such as Ajax cleaner, Hill's Science Diet pet food, Irish Spring soap, and - of course - Colgate toothpaste and Palmolive dish soap has seen earnings hit by economic chaos in Venezuela and currency effects worldwide. With 2015 earnings down 36% to $1.52, the company was not going to be able to support a large dividend increase for its 53rd year of dividend growth. Given that the bulk of the earnings drop was due to a one-time aftertax charge from the Venezuela operations, the payout ratio above 100% should be temporary.
General Dynamics (NYSE:GD)
Prediction: 10.1 - 15.9% increase to $3.04 - $3.20
Actual: 10.1% increase to $3.04
Forward yield: 2.31%
This future S&P Dividend Aristocrat (it should join the index at the beginning of 2017) hit the lower bound of my estimate. While it doesn't quite meet the 10-year dividend growth average of 13.2%, this year's increase is on par with the 5-year growth rate of 10.4%.
Piedmont Natural Gas (NYSE:PNY)
Prediction: 0.0 - 3.0% increase to $1.32 - $1.36
Actual: 3.0% increase to $1.36
Forward yield: 2.27%
Piedmont Natural Gas met the high end of my expectations with a 3.0% dividend increase; this is the 11th straight year of 4 cent dividend growth. The company is currently being acquired by Duke Energy (NYSE:DUK) and the acquisition should close by the end of the year, making this Peidmont's last dividend increase.
Expected High Yield Dividend Aristocrat Increases for April
Based on historical patterns, I expect the following 12 members of the S&P High Yield Dividend Aristocrats to announce their annual dividend increases in April:
Cullen/Frost Bankers (NYSE:CFR)
The Texas-based bank holding company reported full-year earnings of $4.28 a share in 2015, which is essentially flat from 2014. Average loans and deposits were up roughly 9% year-over-year, which is surprising given the slowdown in the energy sector.
Cullen/Frost's current payout of $2.12 translates into a payout ratio of about 50% and with a low debt burden, the company has room to grow the dividend for the 23rd straight year. I'm projecting an increase somewhere between the 5-year growth rate of 3.4% and the 10-year growth rate of 6.1%.
Prediction: 3.8 - 5.7% dividend increase to an annualized rate of $2.20 - $2.24.
Chevron Corporation (NYSE:CVX)
Chevron's earnings have been crushed by the drop in oil prices. The company reported 2015 earnings of $2.45 a share, down from over $10 in 2014. With a current annualized dividend of $4.28, Chevron sports a payout ratio near 175%. In fact, the company skipped the annual dividend increase last year and remains a Dividend Aristocrat only because it usually increases dividends in the middle of the year. (Chevron last increased the dividend in the 2nd quarter of 2014. Total dividends in 2014 were $4.21 per share and in 2015 were $4.28 per share.)
I have no doubt that Chevron will do what it takes to keep the dividend growth streak alive. To do this, it must announce and pay an increase to the regular dividend by the end of 2016. The only question is whether Chevron will wait until the end of the year or maintain the pattern of announcing increases in April. With nearly 2 billion shares outstanding, deferring a penny increase to the annual dividend from the 2nd quarter to the 4th quarter saves Chevron only $10 million in cash - not significant enough in my opinion to defer the expected small dividend increase.
Prediction: 0.23% dividend increase to an annualized rate of $4.29.
H. B. Fuller Company (NYSE:FUL)
The manufacturer of specialty chemicals and adhesives saw EPS for 2015 fall by 6.9% to $2.17. However, H. B. Fuller expects to see a rebound in 2016 due to the benefits of the acquisition of TONSAN Adhesives in early 2015 and is guiding 2016 EPS to between $2.40 and $2.60. 2016 will be Fuller's 47th year of dividend growth and over the last 5 years the company has compounded its dividend at 12.9%. Even with the drop in earnings in 2015, the company sports a low payout ratio of 24%, which along with the expected growth in EPS should encourage a double-digit dividend increase.
Prediction: 9.6 - 15.4% dividend increase to an annualized rate of $0.57 - $0.60.
W. W. Grainger (NYSE:GWW)
Grainger's sales were $10 billion in 2015, flat from 2014. Earnings per share were $11.58 in 2015, up 1% from $11.45, and the company is guiding 2016 EPS to the wide range of $10.80 - $13.00. Grainger is also guiding 2016 sales growth to somewhere between flat and an increase of 7%. Grainger is seeing sales in Canada drop due to lower volume to the oil and gas sector, along with impacts from a strong U.S. dollar.
Last year, Grainger increased its dividend by 8.3%, well below the 10-year average of 17.4%. The company's current payout ratio of 40% provides some room for a decent increase, but the slowdown in sales will limit the company's 45th year of dividend growth to below the long-term rate.
Prediction: 5.1 - 9.4% dividend increase to an annualized rate of $4.92 - $5.12.
Johnson & Johnson (NYSE:JNJ)
The global pharmaceutical and health care company saw sales drop nearly 6% and adjusted EPS drop 3% in 2015. As is the case with most multinational corporations, a significant part of the drop was due to currency effects, with the strong U.S. dollar cutting international sales by 7.5%.
Johnson & Johnson has grown dividends for 53 years and has guided 2016 full-year EPS to between $6.43 and $6.58, representing an increase of 5% at the midpoint. With a low long-term debt-to-equity ratio of 18% and a payout ratio of less than 50%, the company is poised to announce a dividend increase this year in the mid-single digits. This is below the 5-year average growth rate of 6.9%.
Prediction: 4.0 - 6.7% dividend increase to an annualized rate of $3.12 - $3.20.
People's United Financial (NASDAQ:PBCT)
This financial services company, with bank branches in the northeastern United States, is another future S&P Dividend Aristocrat. 2016 will mark the company's 24th year of dividend growth, putting it on track to become an Aristocrat at the beginning of 2018.
The company reported 2015 earnings of 86 cents a share, up from 82 cents a share in 2014. People's United isn't burdened with too much debt - 22% of equity, allowing for continued dividend growth.
Income investors, rather than dividend growth investors, will be more interested in People's United, as the stock has a yield in excess of 4% but a 5-year dividend growth rate of less than 2% a year. In fact since 2009, the company has increased the annual dividend by only a penny a share. With a payout ratio in the 70s, I believe that People's United will continue the pattern, with a small chance of a slightly larger increase.
Prediction: 1.5 - 3.0% dividend increase to an annualized rate of $0.68 - $0.69.
The Procter & Gamble Company (NYSE:PG)
April will mark an important milestone for Procter & Gamble, as the company announces its 60th year of dividend growth. The company's history dates back to 1837 and its record of dividend growth back to 1956. And while the company is able to deliver organic sales growth, currency impacts are taking their toll on sales and earnings per share in dollar terms. In its recent earnings report, the company reaffirmed guidance of currency neutral EPS growth up in the mid-to-high single digits, but a 10% impact from currency effects.
[The report also noted a 38 - 46% growth in EPS from 2015, but that's due to the absence of costs associated with discontinued operations - specifically the sale of Duracell to Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) - and charges related to its Venezuela operations.]
With the drop in core EPS, I doubt that P&G will grow the dividend at the 5-year growth rate of 6.9% - I'm looking for a smaller dividend increase this year.
Prediction: 3.0 - 5.0% dividend increase to an annualized rate of $2.7316 - $2.784.
PPG Industries (NYSE:PPG)
The paint and industrial coatings manufacturer reported flat sales year-over-year, as increases from acquisitions (up 6%) and higher volume (up 1%) were offset by the strong U.S. dollar (down 7%). However, in 2014 PPG retired some debt at a cost of roughly $1.60 a share, resulting in a nice jump in earnings this year. For 2015, full year earnings were $5.69 a share, up 17% from $4.88 a share in 2014. With the absence of the debt retirement charge, PPG is set up nicely to continue its dividend growth into its 45th year.
In 2014, the company increased the dividend by 9.8% and followed that up with a 7.5% increase in 2015. Although PPG's dividend growth rates over the last 5 and 10 years averaged 5.4% and 4.3%, I think the company's on track for an increase in line with the last two years.
Prediction: 8.3 - 9.7% dividend increase to an annualized rate of $1.56 - $1.58.
Tanger Factory Outlet Centers Inc. (NYSE:SKT)
The REIT added 4 new outlet centers in 2015, which powered a 12.7% increase in funds from operations (FFO) to $2.22 a share. Portfolio occupancy continues to exceed 95% and Tanger is planning on opening another 2 outlet centers in 2016. The only mitigating factor with this year's dividend increase (the company's 22nd straight year) is its guidance for 2016 earnings - Tanger is looking at a midpoint increase of 4.5% to FFO, which could limit this year's increase. I'm still looking for this year's dividend growth to well exceed Tanger's 10-year average of 5.5%.
Prediction: 8.8 - 12.3% dividend increase to an annualized rate of $1.24 - $1.28.
Sonoco Products Company (NYSE:SON)
The packaging manufacturer has a modest dividend growth rate over the last 5 and 10 years of 4.5% and 4.2%. Sonoco saw EPS grow 11.4% to $2.44 in 2015, despite flat sales, as restructuring charges fell and is projecting another 10% earnings increase in 2016. The company also approved a $100 million share repurchase program.
Factors that will limit the increase in Sonoco's 34th year of dividend growth include a long-term debt-to-equity ratio of nearly 70%. Despite this, I think the company strong earnings growth will allow it to reward investors with a dividend increase on par with last year's 9% increase.
Prediction: 7.1 - 11.4% dividend increase to an annualized rate of $1.50 - $1.56.
UGI Corporation (NYSE:UGI)
UGI Corporation markets and distributes natural gas and propane in the United States and internationally. UGI also owns 26% of the country's largest retail propane distributors, AmeriGas Partners LP (NYSE:APU). The company is in the process of acquiring Finagaz, an oil, natural gas and propane distributor in France, which is impacting GAAP earnings. Adjusted for the costs of the acquisition, full fiscal year 2015 earnings were flat at $2.01 per share, while 1st quarter EPS were down to 64 cents, due mostly to warmer than expected weather. Nevertheless, UGI is guiding FY 2016 earnings to between $2.15 - $2.30.
UGI has paid dividends for over 130 years and grown them for 28 years. Over the last 5 and 10 years, UGI has compounded dividends at 7.3% and 8.7%. The acquisitions are taking a toll on UGI's balance sheet, as the company sports a debt-to-equity ratio of over 125%. This will limit this year's dividend increase to below the longer term growth rates.
Prediction: 4.4 - 7.7% dividend increase to an annualized rate of $0.96 - $0.98.
Exxon-Mobil Corporation (NYSE:XOM)
Like Chevron, Exxon-Mobil has seen its earnings crushed by the drop in oil prices. Unlike Chevron, however, Exxon-Mobil earnings can still cover the current dividend. With 2015 earnings of $3.85 and a dividend of $2.92, the company sports a payout ratio of 76%. This doesn't mean that investors should expect a big increase - I expect Exxon-Mobil to preserve both its cash and its annual dividend growth record, but the company's 34th year of dividend growth will be marked by an increase much lower than the 5-year average of 10.6%.
Prediction: 1.4 - 2.7% dividend increase to an annualized rate of $2.96 - $3.00.
For everyone invested in these stocks, enjoy the upcoming dividend increases. I'm expecting another 6 - 7 members of the High Yield Dividend Aristocrats to announce increases in May. I'll post my predictions for these companies at the end of April, along with the results from my predictions above.
Disclosure: I am long XOM and may take long positions in CL, PG and/or APD in the next 72 hours.
Disclosure: I am/we are long XOM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may take long positions in APD, CL and/or PG in the next 72 hours.