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.
April saw 14 members of the High Yield Dividend Aristocrats index announce their annual dividend increase, including United Technologies (NYSE:UTX) which advanced its announcement of a 3.1% dividend increase from early May to the last week in April. United Technologies has grown its dividend each year since 1994. The company currently pays $2.56 a share and yields 2.45%.
Industrial goods and environmental equipment manufacturer Pentair (NYSE:PNR) also reaffirmed its previous announcement of a 3.0% dividend increase in April. The company's annual payout is now $1.36; the stock yields 2.27%.
Before we look at the expected dividend increases in May, let's take a look at how my predictions from last month did (you can see my original predictions in last month's article):
Cullen/Frost Bankers (NYSE:CFR)
Prediction: 3.8 - 5.7% increase to $2.20 - $2.24
Actual: 1.9% increase to $2.16
Forward yield: 3.38%
The 1.9% increase from the San Antonio-based regional banking company is below the company's 5-year average of 3.4%, but extends Cullen/Frost's dividend growth streak to 23 years.
Chevron Corporation (NYSE:CVX)
Prediction: 0.23% increase to $4.29
Actual: 0.0% increase to $4.28
Forward yield: 4.19%
Chevron continues to defer its dividend increase. The company went without a dividend increase in 2015 and must increase the dividend this year to remain a Dividend Aristocrat. I still believe that Chevron will keep its dividend growth record alive and will probably wait until the very end of the year to announce its next increase. I still believe that the increase will be minimum necessary to keep its dividend growth record intact.
H. B. Fuller (NYSE:FUL)
Prediction: 9.6 - 15.4% increase to $0.57 - $0.60
Actual: 7.7% increase to $0.56
Forward yield: 1.25%
I expected the manufacturer of adhesives and specialty chemicals to announce a dividend increase more in line with the company's historical growth rate of nearly 13% over the last 5 years. Still, a nearly 8% increase is very healthy for H. B. Fuller, particularly given the drop in EPS last year.
W. W. Grainger (NYSE:GWW)
Prediction: 5.1 - 9.4% increase to $4.92 - $5.12
Actual: 4.3% increase to $4.88
Forward yield: 2.08%
Like many multinational companies, W. W. Grainger has seen and is expecting continued slowing sales. The company has a 10-year dividend growth rate of 17.4%. Last year's dividend increase of 8.3% was roughly half that, and this year the dividend dropped by another 50%.
Johnson & Johnson (NYSE:JNJ)
Prediction: 4.0 - 6.7% increase to $3.12 - $3.20
Actual: 6.7% increase to $3.20
Forward yield: 2.86%
Johnson & Johnson hit the top end of my estimate for its 54th consecutive year of dividend growth, in line with the company's 5-year average growth rate of 6.9%.
People's United Financial (NASDAQ:PBCT)
Prediction: 1.5 - 3.0% increase to $0.68 - $0.69
Actual: 1.5% increase to $0.68
Forward yield: 4.39%
This future S&P Dividend Aristocrat (it should become a member at the beginning of 2018) is for income investors, not dividend growth investors. The regional bank holding company continued its history of increasing the dividend by a penny a share - something it's done since 2009.
Procter & Gamble Company (NYSE:PG)
Prediction: 3.0 - 5.0% increase to $2.7316 - $2.784
Actual: 1.0% increase to $2.678
Forward yield: 3.34%
Procter & Gamble reported a drop in core EPS in 2015 due to currency effects, which led me to expect a smaller than usual dividend increase this year. I overestimated the impact, though, and the company announced a small increase to start its 6th decade of dividend growth.
PPG Industries, Inc. (NYSE:PPG)
Prediction: 8.3 - 9.7% increase to $1.56 - $1.58
Actual: 11.1% increase to $1.60
Forward yield: 1.45%
PPG's retirement of debt in 2014 are allowing the company to show strong dividend growth. Dividend increases over the last three years have well exceeded PPG's 5-year average of 5.4%
Tanger Factory Outlet Centers (NYSE:SKT)
Prediction: 8.8 - 12.3% increase to $1.24 - $1.28
Actual: 14.0% increase to $1.30
Forward yield: 3.71%
I was pleasantly surprised by Tanger's dividend increase this year. I had expected that the relatively slow growth in FFO expected in 2106 would put pressure on the dividend increase, but the company continues to open new outlets and has strong occupancy rates.
Sonoco Company (NYSE:SON)
Prediction: 7.1 - 11.4% increase to $1.50 - $1.56
Actual: 5.7% increase to $1.48
Forward yield: 3.16%
I had expected the packaging and container manufacturer to grow this year's payout in line with last year's 11.4% increase, but between the company's 70% debt-to-equity ratio and allocation of $100 million to share buybacks, Sonoco's growth this year was more in line with its long-term growth rate in the 4 - 5% range.
UGI Corporation (NYSE:UGI)
Prediction: 4.4 - 7.7% increase to $0.95 - $0.98
Actual: 4.4% increase to $0.95
Forward yield: 2.36%
As I predicted, UGI's heavy debt load from multiple acquisitions limited this year's dividend increase. The propane distributor hit the low end of my prediction. I expect that UGI will limit dividend growth going forward until it can bring its debt load down.
(Please note that in last month's article, I gave a predicted range of 4.4 - 7.7%, which I said corresponded to an annual dividend of 96 - 98 cents. I made a mistake on the math, which I've corrected above.)
Prediction: 1.4 - 2.7% increase to $2.96 - $3.00
Actual: 2.7% increase to $3.00
Forward yield: 3.39%
Given the drop in oil prices, I wasn't expecting much from Exxon-Mobil. My prediction was met, with the oil giant hitting the top end of my low expectations for its 34th year of dividend growth.
Expected High Yield Dividend Aristocrat Increases for May
Based on historical patterns, I expect the following 5 members of the S&P High Yield Dividend Aristocrats to announce their annual dividend increases in May:
Cardinal Health (NYSE:CAH)
Cardinal Health has been a leader in dividend growth, with double digit increases since 2005. Over the last 5 and 10 years, the company's year-over-year dividend growth has averaged 14.6% and 21.8%. Investors should see another good increase this year, as the company announced 2nd quarter EPS growth of 14%. This is on top of a 38% year-over-year increase in the 1st quarter of the company's fiscal year. Cardinal Health is guiding non-GAAP EPS to $5.15 - $5.35, an increase of around 20% from the prior year. The only possible hiccup is the large debt-to-equity ratio of 82%
Given the nice earnings growth that Cardinal Health saw in the first half of its fiscal year, I expect that the company's 32nd year of dividend growth will be inline with the non-GAAP EPS, but will be mitigated by the relatively heavy debt load.
Prediction: 13.7 - 18.9% dividend increase to an annualized rate of $1.76 - $1.84.
Chubb Limited (NYSE:CB)
ACE Limited, an S&P High Yield Dividend Aristocrat, closed on its purchase of The Chubb Corporation in mid-January, dropped the ACE ticker and began trading under the CB ticker symbol. Hence, this is not the same company that had increased its dividend for 33 years. Nevertheless, ACE Limited had established a record of 22 years of dividend growth in its own right, and I expect the new Chubb Limited to continue to grow its year-over-year dividend payout.
Chubb reported full year 2015 earnings for legacy Chubb and legacy ACE separately. The legacy Chubb reported an increase in net income of 6.8%, mostly due to an increase in operating income, while the legacy ACE's 2.4% increase in net income per share was due to a reduction in investment losses. The strong U. S. dollar impacted legacy ACE's income by roughly 5 - 7%.
The legacy ACE varied its dividend growth wildly over the last several years, increasing the year-over-year payout by double-digits in some years and by 3.1% last year. The average growth rate looks good, with 5 and 10-year average dividend growth of 15.4% and 11.5%, respectively. I think that we'll see a dividend increase in the high single digits, but I'll give myself a little leeway here, given the uncertainty from the merger.
Prediction: 3.0 - 11.9% dividend increase to an annualized rate of $2.76 - $3.00.
The Clorox Company (NYSE:CLX)
Clorox owns multiple well-known brands, including its eponymous cleaning products, Kingsford charcoal, the Glad brand of bags and containers, and Fresh Step cat litter. I expect the company to announced its 39th consecutive annual dividend increase during the 2nd week of May. Clorox announced 2nd quarter earnings back in February and, based on 31% earnings growth in its charcoal products, showed 18% year-over-year EPS growth. Clorox also increased its fiscal 2016 guidance to between $4.75 and $4.90, an increase of 4% - 7% above 2015's $4.57 EPS.
In addition to the earnings growth, Clorox is looking at an expansion of its earnings margin by 0.5 - 0.75 percentage points. Despite a fairly small dividend increase last year of 4.1%, Clorox has compounded dividends at 7.5% since 2010 and 10.4% since 2005. With a fairly high payout ratio of 67%, I'm expecting a dividend increase in line or slightly less than the expected EPS growth.
Prediction: 2.6 - 6.5% dividend increase to an annualized rate of $3.16 - $3.28.
Expeditors International of Washington, Inc. (NASDAQ:EXPD)
The global logistics company purchases shipping capacity in bulk and works with its customers to provide freight services for their products. Expeditors International pays dividends semi-annually, rather than quarterly and in 2015 paid a dividend of 72 cents, up 12.5% from 2014. Through a combination of share repurchases and increasing margins, the company increased EPS by 25% from 2014, despite flat to slightly lower ocean and air freight volumes.
Expeditors International has built a nice record of dividend growth, having compounded its dividend an average of 12.5% since 2010 and nearly 17% since 2005. And since the 2015 EPS of $2.40 gives the company a current payout ratio of 30%, there's plenty of headroom for another nice dividend increase this year.
Prediction: 12.5 - 18.1% dividend increase to an annualized rate of $0.81 - $0.85.
Lowe's Companies (NYSE:LOW)
Lowe's Companies owns and operates nearly 1,900 home improvement stores in North America. The company reported full year EPS of $2.73, flat from 2014's $2.71 earnings per share. However, the 2015 EPS figure includes a significant charge from Lowe's exiting a joint venture in Australia. Without the impairment charge, last year's EPS would have been up 21% to $3.29. The company isn't expecting this one-time charge to impact future year earnings; the company is guiding 2016 full year EPS to $4.00.
This annual EPS growth has fueled outstanding dividend growth in the past - the company's 5-year dividend growth rate has been more than 20% annually. Even better, Lowe's 10-year dividend growth rate has been 26% a year. With a current payout ratio of 41% - which is inflated due to the impairment charge - Lowe's has plenty of room for a dividend increase in line with its historical numbers.
Prediction: 17.9 - 25.0% dividend increase to an annualized rate of $1.32 - $1.40.
For everyone invested in these stocks, enjoy the upcoming dividend increases. I'm expecting another 6 members of the High Yield Dividend Aristocrats to announce increases in June. I'll post my predictions for these companies at the end of May, along with the results from my current predictions.
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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: Disclosure: I am long XOM and may take a position in any of the stocks mentioned in this article in the near future. In particular, I am looking at possible positions in CLX, EXPD, FUL, JNJ, PG and/or PPG.