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Illinois Tool Works Leads Way In August With 20% Dividend Increase

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Includes: BMI, BRC, CBU, CSL, DCI, DOV, FRT, IFF, ITW, LHX, LMT, MCD, MGEE, MSFT, NDSN, WTR
by: Harvesting Dividends
Harvesting Dividends
Dividend growth investing, long-term horizon, technical analysis
Summary

11 dividend growth companies I track and provide predictions for announced their annual increases in August.

About half of my predictions were accurate. Three companies announced larger-than-expected increases; notably Illinois Tool Works surprised with a 20% increase.

September will be slow, with only five companies announcing annual dividend increases. We should see at least one of them to be in the double digits.

My regular followers know that I track the dividend increases of a variety of long-term dividend growth companies. Back at the end of August, I provided predictions for 12 dividend growth companies that have historically announced annual payout increases in July. Before I give you my predictions for the dividend increases for September, let’s take a look at how well I did with the predictions from August (you can see the article with the original predictions here):

Badger Meter (NYSE:BMI)

Prediction: 13.0-17.4% increase to $0.52-0.54

Actual: 13.0% increase to $0.52

Forward yield: 1.14%

As expected, the manufacturer of flow measurement products and services rewarded investors with a double-digit increase this year - the company’s 26th year of dividend growth. Over the last two years, Badger Meter has grown its dividend by nearly 40%.

Community Bank System (NYSE:CBU)

Prediction: 3.1-6.3% increase to $1.32-1.36

Actual: 6.3% increase to $1.36

Forward yield: 2.63%

Another company with 26 years of dividend growth under its belt; the regional banking company with branches in the northeastern U.S. hit the high end of my estimate buoyed by 14% EPS growth in 2016, followed by another 3.6% EPS growth in the first half of 2017.

Carlisle Companies (NYSE:CSL)

Prediction: 4.3-7.1% increase to $1.46-1.50

Actual: 5.7% increase to $1.48

Forward yield: 1.56%

Diversified manufacturer Carlisle’s dividend growth slowed from historical levels (an average of more than 13% over the last five years) on falling EPS. Despite the slower-than-normal dividend growth, Carlisle still sports a modest payout ratio of around 40%.

Donaldson Company (NYSE:DCI)

Prediction: 2.9-8.6% increase to $0.72-0.76

Actual: 2.9% increase to $0.72

Forward yield: 1.52%

The filtration company announced its 31st annual dividend increase at the end of July. Despite guiding to 12% EPS growth, Donaldson kept its dividend growth at the low end of my expected range.

Dover Corporation (NYSE:DOV)

Prediction: 15.9-20.4% increase to $2.04-2.12

Actual: 6.8% increase to $1.88

Forward yield: 2.20%

Despite expected EPS growth of more than 30%, the Dover board decided to play it safe. The company’s 62nd straight year of dividend growth is in line with the five-year average of 7.8%.

Federal Realty Investment Trust (NYSE:FRT)

Prediction: 3.6-4.6% increase to $4.06-4.10

Actual: 2.0% increase to $4.00

Forward yield: 3.12%

Federal Realty’s increase this year is the smallest since 2012. This is the 50th year of dividend growth for the retail REIT.

Harris Corporation (HRS)

Prediction: 4.7-7.5% increase to $2.22-2.28

Actual: 7.5% increase to $2.28

Forward yield: 1.85%

Harris’ 16th year of dividend growth is the second consecutive year of a dividend increase in the mid-single digits for the defense electronics company and about half the five-year average of 14%.

International Flavors & Fragrances (NYSE:IFF)

Prediction: 4.7-6.3% increase to $2.68-2.72

Actual: 7.8% increase to $2.76

Forward yield: 2.00%

I expected the specialty chemical company to increase its dividend in line with earnings growth. Instead, the company decided its 15th year of dividend growth would be larger than I predicted and about twice the expected 2017 EPS growth.

Illinois Tool Works (NYSE:ITW)

Prediction: 10.8-13.8% increase to $2.88-2.96

Actual: 20.0% increase to $3.12

Forward yield: 2.27%

Illinois Tool Works’ 55th year of dividend growth brought an increase nearly twice the company’s five-year average growth rate.

MGE Energy (NASDAQ:MGEE)

Prediction: 4.1-6.5% increase to $1.28-1.31

Actual: 4.9% increase to $1.29

Forward yield: 2.02%

The diversified utility company serving portions of Wisconsin rewarded investors with a slightly larger increase this year, reflecting the double-digit EPS growth MGE Energy saw in the first quarter. This is MGE’s 41st year of dividend growth.

Nordson Corporation (NASDAQ:NDSN)

Prediction: 7.4-11.1% increase to $1.08-1.20

Actual: 11.1% increase to $1.20

Forward yield: 1.09%

Nordson, manufacturer of fluid dispensing and testing equipment, gave investors a nice double-digit increase in its 54th year of dividend growth. The 11% increase is in the middle of the EPS growth guidance for the year.

Aqua America (NYSE:WTR)

Prediction: 3.2- 5.9% increase to $0.79-0.81

Actual: 7.0% increase to $0.8188

Forward yield: 2.44%

I had expected Aqua America to increase its dividend in line with the projected EPS growth of 4%. The water utility’s 26th year of dividend growth brought a larger-than-expected increase for investors.

Four Announcements of Dividend Increases Expected in September

Here are my predictions for the four dividend increases I expect in September:

Brady Corporation (NYSE:BRC)

Brady has grown dividends for 31 years and is poised to announce its next increase after Labor Day. In each of the last two years, the manufacturer of identification and data collection systems has increased its dividend by a single penny. However, this year should bring a bigger increase - Brady is guiding to a 15% year-over-year growth in EPS, and in the first three quarters has increased EPS by more than 25%. I’m looking to the streak of penny per share dividend increases to be broken and for an increase closer to and possibly larger than the 10-year average of 4.4%.

Prediction: 2.4-4.9% increase to $0.84-0.86

Predicted Forward Yield: 2.50-2.56%

Lockheed Martin (NYSE:LMT)

Lockheed Martin, one of the “Big 3” aerospace and defense companies in the U.S. (Boeing (NYSE:BA) and Northrop Grumman (NYSE:NOC) are the other two), saw first-half EPS slip by 6% over the same period in 2016. The company is projecting full-year EPS of between $12.30 and $12.60; at the midpoint of this range, the company has a payout ratio of 60%. This gives Lockheed room for another dividend increase, but with the fall in EPS, I expect the increase to be less than the five-year average of 16%. 2017 will be Lockheed’s 15th straight year of dividend growth.

Prediction: 9.9-12.1% increase to $8.00-8.16

Predicted Forward Yield: 2.64-2.70%

McDonald's (NYSE:MCD)

After growing EPS by 13% in 2016, the worldwide fast food company is off to a stellar start in the first half of 2017. McDonald’s posted EPS of $3.17 for the first six months of 2017, up more than 26% over the same period in 2016. On the other hand, over the last two years, McDonald’s debt has nearly doubled to 80% of net assets. I expect that the company will begin to pay down some of the debt this year, which will limit its 41st year of dividend growth to close to the five-year average of 7.4%.

Prediction: 6.4-7.4% increase to $4.00-4.04

Predicted Forward Yield: 2.50-2.53%

Microsoft Corporation (NASDAQ:MSFT)

Buoyed by increases in revenues from cloud services and search advertising, Microsoft posted an increase in non-GAAP EPS in 2017 of 20% to $3.31. Last year’s 8% dividend increase was unusually small, given the company’s five-year growth average of 17%. With the good EPS growth, Microsoft should be able to return to its usual growth rate in its 15th year of growing dividends.

Prediction: 15.4-20.5% increase to $1.80-1.88

Predicted Forward Yield: 2.43-2.54%

If you enjoyed this article and would like to find out how my predictions turn out at the end of September, please follow me by clicking the "Follow" button next to my name at the top of the article. Thanks!

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ANY OF THESE STOCKS over the next 72 hours. 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.