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 four dividend growth companies that have historically announced annual payout increases in September. I should point out that two long-time dividend growth stocks also announced increases in September: Realty Income (O) announced its third increase this year – a 0.2% increase to an annualized $2.544. Verizon (VZ) announced its 11th straight year of dividend growth with a 2.2% increase to an annualized $2.36. Both companies have good forward yields: Realty Income’s forward yield is 4.46%, while Verizon’s is 4.77%.
Before I give you my predictions for the dividend increases for October, let’s take a look at how well I did with the predictions from September (you can see the article with the original predictions here):
Brady Corporation (BRC)
Prediction: 2.4-4.9% increase to $0.84-$0.86
Actual: 1.2% increase to $0.83
Forward yield: 2.17%
Despite my hope that Brady would break its streak of annual increases of a penny per share, the company chose to increase its dividend by the smallest amount possible for the third year in a row. This is Brady’s 32nd year of dividend growth.
Lockheed Martin Corporation (LMT)
Prediction: 9.9-12.1% increase to $8.00-$8.16
Actual: 9.9% increase to $8.00
Forward yield: 2.58%
Impacted by a fall in earnings, the aerospace and defense contractor hit the low end of my prediction for its 15th year of dividend growth.
Prediction: 6.4-7.4% increase to $4.00-$4.04
Actual: 6.4% increase to $4.00
Forward yield: 2.55%
As I expected, the heavy debt taken on by McDonald's over the last two years kept the fast food company’s dividend increase this year to around 7%, well below the 26% year-over-year growth in EPS to date. This is McDonald's 41st straight year of dividend growth.
Microsoft Corporation (MSFT)
Prediction: 15.4-20.5% increase to $1.80-$1.88
Actual: 7.7% increase to $1.68
Forward yield: 2.26%
This was my biggest surprise of the month. Microsoft decided to pull back on its dividend growth rate again this year. This is the second straight year of a dividend increase in the 8% range for the tech company, well below the 5-year average of 17%.
Sixteen Announcements of Dividend Increases Expected in October
Here are my predictions for the sixteen dividend increases I expect in October:
The biopharmaceutical company has grown its dividend by 60% since being spun off from Abbott Labs (NYSE:ABT) at the beginning of 2013. Powered by double-digit sales increases of Humira and its new leukemia drug IMBRUVICA, AbbVie is guiding full-year 2017 adjusted EPS to between $5.44 and $5.54, an increase of 14% at the midpoint. Look for another nice dividend increase this year, on par with the average compounded growth rate since 2013 of 12.5%.
Prediction: 10.9-14.1% increase to $2.84-$2.92
Predicted Forward Yield: 3.20-3.29%
Aflac Inc. (AFL)
The multinational insurer is guiding to a decrease in full-year operating EPS of about 4% this year, although EPS over the first half of 2017 are up nearly 6%. With a current dividend of $1.72 and the operating guidance EPS midpoint at $6.53, AFL’s payout ratio of 26% will support a 35th year of dividend growth. Although the company’s 5-year average growth rate is 6.2%, the fall in earnings will make that the high end of my prediction
Prediction: 4.7-7.0% increase to $1.80-$1.84
Predicted Forward Yield: 2.21-2.26%
AptarGroup Inc. (ATR)
AptarGroup supplies dispensing systems for the personal care, prescription drug, and food and beverage markets. The company has grown dividends for 23 years, compounding dividends by 8.8% over the last 5 years. AptarGroup is seeing a drop in revenues in the Beauty & Home segment, which is offset by growth in the Pharma and Food and Beauty segments, resulting in flat revenues overall. Although 1st half EPS is up 15% year over year to $1.81, 18 cents of that is due to one-time tax benefits, and the company is guiding 3rd quarter EPS to a drop of 1-2% from last year’s 82 cents EPS. The bottom line is that AptarGroup is seeing pressure on its ability to grow its dividend at the same rates as in the past. However, the payout ratio of around 45% means there’s room for a modest dividend increase this year.
Prediction: 4.7-7.8% increase to $1.34-$1.38
Predicted Forward Yield: 1.55-1.60%
Brown & Brown (BRO)
Insurer Brown & Brown has compounded dividends at slightly more than 9% over the last 5 and 10 years. First half revenues and EPS are up 4.4% and 5.5% year over year, which will support the company’s 24th year of dividend growth. Although the EPS growth isn’t as large as Brown & Brown’s historic dividend growth rate, with a payout ratio below 30%, I expect another year of 9% dividend growth.
Prediction: 7.4-9.3% increase to $0.58-$0.59
Predicted Forward Yield: 1.20-1.22%
Commerce Bancshares (CBSH)
The Missouri-based bank holding company has rewarded investors with a 5% stock dividend since 1994, occasionally augmenting the stock dividend with an increase in the cash dividend over that time. This has resulted in 5- and 10-year dividend growth rates of 9%. Over the first half of the year, Commerce Bancshares earned $1.43 per share, up 12% year over year. I expect the company to continue the 5% stock dividend, with the possibility of a small increase in the cash per share increase.
Prediction: 5% stock dividend + 0.0–4.4% cash increase to $0.90-$0.94
Predicted Forward Yield: 1.55-1.62%
Cintas Corporation (CTAS)
Business services company Cintas has an outstanding dividend growth record, having doubled its dividend in 5 years and nearly quadrupled them in 10 years. Cintas is relatively unique among dividend-paying companies, paying out once per year, rather than quarterly. The company acquired G&K Services in March, which complicates the accounting, but Cintas continued its outstanding EPS growth.
Excluding the G&K acquisition, Cintas’ 2017 EPS increased 13% to $4.53. Accounting for acquisition costs, full-year EPS was $4.17, an increase of nearly 4% over 2016’s $4.02. Since the acquisition costs are one time, I expect Cintas to reward investors with another double-digit gain – not on the order of last year’s 26% increase, but a nice increase nonetheless. This will be Cintas’ 35th year of dividend growth.
Prediction: 13.5-20.3% increase to $1.51-$1.60
Predicted Forward Yield: 1.05-1.11%
Eaton Vance (EV)
It should be another good year for investment manager Eaton Vance, which saw a 21% year-over-year increase in assets under management at the end of July. (The increase came roughly equally from investment gains and from inflows.) This, in turn, powered an 12% increase in adjusted EPS in the first 9 months of the fiscal year, to $1.73 a share. Assuming flat 4th quarter EPS, this give Eaton Vance a payout ratio of less than 50%. This should support an announcement in line with the 5-year average of 8.1% for the company’s 37th year of dividend growth.
Prediction: 7.4-10.7% increase to $1.20-$1.24
Predicted Forward Yield: 2.43-2.51%
Lincoln Electric Holdings (LECO)
Lincoln Electric develops and markets robotic arc welding and related systems for various industries. 2017 will be Lincoln’s 23rd straight year of dividend growth. The company is seeing another year of nice earnings growth, which should support another year of double-digit dividend growth. EPS are up 10% to $1.76 over the first half of the year, putting Lincoln Electric on track to beat last year’s EPS of $3.29. With a current dividend of $1.40, the company has room for a dividend increase close to the 10-year growth average of 12.7%.
Prediction: 8.6-14.3% increase to $1.52-$1.60
Predicted Forward Yield: 1.66-1.74%
Middlesex Water Company (MSEX)
Middlesex provides water and wastewater services to southern New Jersey and Delaware; the company has paid dividends since 1912 and increased them for 44 years. Earnings per share fell by 9% year over year in the first 6 months of the company’s fiscal year, which will put downward pressure on the company’s dividend increase this year. The company is a long way from last year’s 6% increase; this year’s increase should be in line with the 5-year average of less than 2%.
Prediction: 0.6-1.8% increase to $0.85-$0.86
Predicted Forward Yield: 2.17-2.19%
Northwest Natural Gas Company (NWN)
Northwest Natural Gas provides natural gas service to customers in Oregon and Washington State. The company is guiding to slightly negative EPS growth, with the midpoint of the 2017 guidance down 1.8% from 2016’s adjusted EPS of $2.19. Over each of the last two years, Northwest has increased the annual payout by a penny a share, and with the flat earnings, I think the company will make it three years in a row with a small chance of a slightly larger increase. This will be Northwest’s 62nd straight year of dividend growth.
Prediction: 0.5-1.1% increase to $1.89-$1.90
Predicted Forward Yield: 2.93-2.95%
Prosperity Bancshares (PB)
The Texas-based bank holding company is seeing flat earnings over the same period last year. For the first half of the year, Prosperity Bancshares has first half EPS of $1.97 – essentially the same as 2016’s $1.96 per share. The flat earnings may mean that this year’s dividend increase (the company’s 18th) will be dramatically smaller than the 5-year dividend growth average of 11.5%. The good news is that the company has no debt and a low payout ratio below 35%. Given these conflicting factors, I’m looking for a dividend increase in the high single digits.
Prediction: 5.9-8.8% increase to $1.44-$1.48
Predicted Forward Yield: 2.20-2.26%
RPM International Inc. (RPM)
If you own a house (or just live in one), you’ve probably bought a product from this specialty chemical manufacturer. RPM’s brands include Rust-Oleum, DAP, and Day-Glo, among many others. 2017 will be RPM’s 43rd year of dividend growth, and while full-year EPS was down nearly 50% to $1.36, most of this drop was due to temporary factors like the costs associated with closing facilities and one-time impairment charges. Adjusting for these factors, RPM’s EPS were down 4% to $2.47, giving the company a payout ratio of 50%. Going forward, the company is guiding next year’s EPS to a range of $2.85-$2.95. I’m looking for a dividend increase in line with the 5-year average of 5.6%.
Prediction: 5.0-6.7% increase to $1.26-$1.28
Predicted Forward Yield: 2.46-2.49%
Stepan Co. (SCL)
2017 marks half a century of dividend growth for Stepan Co., a manufacturer of specialty chemicals used in cleaning products. The company has a good record of dividend growth, having compounded dividends at nearly 8% annually over the last 5 years. Despite only growing EPS over the first half of the year by less than 2%, Stepan’s payout ratio is around 20%, its debt is modest and the company is poised to reward investors with another dividend increase in the mid-single digits.
Prediction: 4.9-7.3% increase to $0.86-$0.88
Predicted Forward Yield: 1.03-1.05%
Investors in AT&T know what they’re going to get with the annual dividend increase – for the last decade, the telecommunications company has grown its dividend by 4 cents a share each year. Over the last 5 years, the dividend growth rate has been 2.2%; over the last 10, it’s been 3.3%. The good news is that AT&T is guiding to adjusted EPS growth in the mid-single digits. The bad news is that AT&T has a heavy debt hanging over it, and I think that this will mean another year of a 4 cent increase, with the possibility of a slightly higher increase.
Prediction: 2.0-4.1% increase to $2.00-$2.04
Predicted Forward Yield: 5.11-5.22%
UMB Financial Corporation (UMBF)
UMB Financial is a holding company serving the Midwest, Arizona, and Texas. For the last 9 years, the company has increased its annual payout by 4 cents a share. With a 16% year-over-year gain in EPS over the first 6 months of the fiscal year, UMB might break the streak this year. Between a low debt burden and a payout ratio of less than 25%, I expect a dividend increase around the 10-year average of 6.8% in the company’s 24th year of dividend growth.
Prediction: 5.9-7.8% increase to $1.08-$1.10
Predicted Forward Yield: 1.45-1.48%
V.F. Corporation (VFC)
V.F. Corporation has grown dividends for the last 44 years and over the last 5 years has grown its dividend by more than 130%. I suspect that the dividend growth will slow this year, as the clothing manufacturer is looking at a 5% drop in EPS from 2016. With EPS guidance at $2.96, V. F. Corporation’s payout ratio is a modest but not particularly low 55%. The fall in EPS will probably drive this year’s dividend growth to the high single digits, with a small chance of V.F. Corporation’s 6th straight year of a double-digit increase.
Prediction: 7.1-11.9% increase to $1.80-$1.88
Predicted Forward Yield: 2.83-2.96%
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Disclosure: I am/we are long ABBV, LECO.
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 a position in any of the stocks mentioned in this article in the near future.