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 the roughly 100 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.
I expect 7 members of the High Yield Dividend Aristocrats index - including 1 that deferred its announcement from July - to announce annual dividend increases in August. Before I give you those predictions, let's take a look at how my predictions from July did.
July saw 4 members of the High Yield Dividend Aristocrats index announce their annual dividend increase. I made predictions for 3 of them in last month's article, but I did not expect Realty Income Corporation (O), which pays dividends monthly, to increase its dividend. For the third time this year, and the 2nd time in the last 3 months, Realty Income increased its monthly dividend. Realty Income's dividend increase of 0.2 cents per share gives the company an annualized dividend of $2.42. Realty Income stock now yields 3.38%.
Here's how my predictions did from July:
National Retail Properties (NNN)
Prediction: 3.4-5.7% increase to $1.80-$1.84
Actual: 4.6% increase to $1.82
Forward yield: 3.42%
The owner of nearly 2,300 retail properties rewarded investors with its 27th year of dividend growth in July. The dividend increase was the largest since 2006, but roughly half the expected increase in FFO in 2016.
Stanley Black & Decker (SWK)
Prediction: 3.6-6.4% increase to $2.28-$2.34
Actual: 5.5% increase to $2.32
Forward yield: 1.91%
Stanley Black & Decker met my expectations of a mid-single digit dividend increase this year. This was in line with the company's 10-year growth average of 6.5% and is the tool manufacturer's 48th year of dividend growth.
Walgreens Boots Alliance (WBA)
Prediction: 8.3-13.9% increase to $1.56-$1.64
Actual: 4.2% increase to $1.50
Forward yield: 1.89%
With a smaller-than-expected dividend increase, this is the 2nd year in a row the company has slowed its dividend growth. Despite issuing guidance for a 12-17% increase in earnings, I underestimated the healthcare company's desire to retain cash as it pursues the merger with Rite Aid (RAD). I think that once the merger is complete, we'll see faster dividend growth, but for now, Walgreens is playing it safe.
West Pharmaceutical Services (WST)
Prediction: 8.3-16.7% increase to $0.52-$0.56
Actual: No announcement - likely delayed to August.
West Pharmaceuticals usually announces its dividend increase in late July, but has occasionally moved the announcement to early August. The increase announcement will likely come out the first week of the new month. My prediction above still stands.
Expected High Yield Dividend Aristocrat Increases for August
Based on historical patterns, I expect the following 6 members of the S&P High Yield Dividend Aristocrats to announce their annual dividend increases in August:
Carlisle Companies (CSL)
Carlisle Companies should announce its 40th year of dividend increases in August. The company has been seeing outstanding earnings growth this year. Over the first half of the fiscal year, Carlisle increased earnings per share from $2.02 to $2.80, a 38% increase. The company hasn't provided full-year guidance, but the increase is not coming from one-time events, so there's no reason to think that the rest of the year will be any different.
Carlisle increased the dividend last year by 20% to $1.20. With strong earnings growth and a fairly low debt level, the diversified manufacturer should pay out another nice dividend increase again this year, well above the 5-year average of 10.8%.
Prediction: 15.0-21.7% dividend increase to an annualized rate of $1.38-$1.46.
Dover Corporation (DOV)
With the expected dividend increase in August, the engineering firm will maintain its position as the company with the longest record of dividend growth among the Dividend Aristocrats with 61 years of dividend growth. Dover has seen its earnings drop due to lower capital spending from oil & gas customers. In response, the company is undergoing a restructuring to reduce costs, forcing the company to reduce full-year EPS guidance to a range of $3.35-$3.45, down from $3.51-$3.66.
Last year, Dover increased the dividend by 5% to an annualized $1.68. This increase was lower than the 5 and 10-year averages of 8.9% and 9.5%. Despite a reasonable payout ratio of 50%, Dover has a decent amount of debt, and will probably slow the dividend growth until energy-based revenues get back on track. I'm looking for a dividend increase on par with last year's.
Prediction: 4.5-7.1% dividend increase to an annualized rate of $1.76-$1.80.
Federal Realty Investment Trust (FRT)
The retail REIT is due to increase its dividend for the 49th year in a row in August. At more than 8%, last year's increase was well above the long-term average, powered by a 7.7% growth in funds from operations (FFO). Federal Realty has provided guidance for 2016 per share FFO of $5.65-$5.71, up about 6-7% from 2015's $5.32. Furthermore, the first quarter was good for Federal Realty; FFO was up 9.5% year over year to $1.38 per share.
The company has given investors nice year-over-year dividend raises of more than 9% over each of the last two years. In contrast, from 2006 to 2013, the annual dividend growth was in the low to mid-single digits, resulting in a 5-year average dividend growth of 6.4% and 10-year average dividend growth of 5.3%. I expect the dividend increase this year to be in the mid-single digits, in line with the expected growth in FFO.
Prediction: 5.3-7.4% dividend increase to an annualized rate of $3.96-$4.04.
Illinois Tool Works (ITW)
The diversified manufacturer of machinery saw a nice bump in earnings in the 2nd quarter, with EPS up 12% year over year. This led Illinois Tool to raise full-year earnings guidance by 10 cents to a range of $5.50-$5.70, which represents a 9.1% increase at the midpoint from last year's EPS of $5.13.
Despite ITW's heavy long-term debt-to-equity load of 127%, the company has a nice record of rewarding investors with significant dividend increases. I expect this year's increase to be in line with the 5-year dividend growth average of 9.6%.
Prediction: 7.3-10.9% dividend increase to an annualized rate of $2.36-$2.44.
Nordson Corporation (NDSN)
The manufacturer of dispensing and coating systems is seeing a 30% increase in earnings for the first half of the fiscal year and recently guided 3rd quarter EPS to a year-over-year gain of between 10-20%. This should power Nordson's dividend increase to a strong showing. However, the company's heavy debt load (more than 140% debt to equity) will limit the dividend increase this year. I'm looking for a dividend increase this year (the company's 53rd) on par with last year's 9% increase, but well below the 5-year average of 18.1%.
Prediction: 8.3-12.5% dividend increase to an annualized rate of $1.04-$1.08.
Aqua America (WTR)
Aqua America is one of the most dividend-friendly companies out there. It is one of only a few companies that allows investors in its direct stock purchase program to invest without paying any fees, and one of only a very few companies that offers a discount on stock purchased through the dividend reinvestment program. It sports 5 and 10-year dividend growth averages of 7.6% and 8%, and this year should be the company's 25th year of dividend growth.
The company reported a 7% increase in 1st quarter EPS and maintained its guidance for 2016 earnings from continuing operations of $1.30-$1.35, up 3-7% from 2015's $1.26 per share. Although the company sports a heavy debt-to-equity load of 100% (no doubt from the company's acquisitions), I'm looking for a dividend increase around the historical average with a chance of a slightly smaller increase.
Prediction: 5.1-6.7% dividend increase to an annualized rate of $0.748-$0.76.
Things slow down to a crawl in September, when I expect to see only 2 dividend increases. I'll post my predictions for these companies at the end of August, along with the results from my current predictions.
If you enjoyed this article and would like to find out how my predictions turn out at the end of August, please follow me by clicking the "Follow" button next to my name at the top of the article. Thanks!
Disclosure: I am long WBA and may take a position in any of the stocks mentioned in this article in the near future.
This article was written by
Disclosure: I am/we are long WBA. 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.