My regular followers know that I track the dividend increases of a variety of long-term dividend growth companies. Back at the end of November, I provided predictions for 12 dividend growth companies that have historically announced annual payout increases in December. In addition, I carried forward my predictions for two companies that deferred their increase from November: Roper Industries (ROP) and AT&T (T). I should also mention that I didn’t predict the December announcement from Realty Income Corporation (O): A 0.2% dividend increase to an annualized $2.55.
I expect 14 companies to announce dividend increases in January. Before I give you these predictions, let’s take a look at how well I did with my predictions from December (you can see the original article here):
Prediction: 5.7 – 7.5% increase to $1.12 - $1.14
Actual: 5.7% increase to $1.12
Forward yield: 1.96%
Abbott’s heavy debt load limited the company’s 47th year of dividend growth, but EPS growth of 13% this year meant that the healthcare company was going to do better than last year’s 2% dividend increase. This year’s increase is in line with the company’s five-year average growth rate of 6%.
Franklin Resources (BEN)
Prediction: 12.5 – 20.0% increase to $0.90 - $0.96
Actual: 15.0% increase to $0.92
Forward yield: 2.12%
The asset manager continued its outstanding record of dividend growth with the fifth straight year of double-digit increases. Franklin Resources’ low payout ratio and low debt levels meant the company could overcome slow EPS growth and reward investors very nicely in its 36th straight year of dividend growth.
C. H. Robinson Worldwide (CHRW)
Prediction: 4.4 – 6.7% increase to $1.88 - $1.92
Actual: 2.2% increase to $1.84
Forward yield: 2.07%
I had modest expectations for logistics company C. H. Robinson. Unfortunately, an expected 8% drop in EPS for Robinson put pressure on the company, leading to a smaller-than-expected 4-cent increase. This is C. H. Robinson’s 20th year of dividend growth.
CVS Health Corporation (CVS)
Prediction: 12.0 – 15.0% increase to $2.24 - $2.30
Actual: No increase.
Forward yield: 2.76%
This is the biggest disappointment of the month. I had expected a minimum 12% increase from CVS Health. For some reason – I’ll guess that it has to do with the announced merger with Aetna – CVS held the dividend steady. CVS has the rest of 2018 to increase the payout to extend its dividend growth streak to 15 years.
Ecolab Inc. (ECL)
Prediction: 5.4 – 8.1% increase to $1.56 - $1.60
Actual: 10.4% increase to $1.64
Forward yield: 1.22%
Last month I said that I expected a dividend increase comparable to last year’s 5.4% with a small chance of something larger. Small chance, indeed. Ecolab exceeded my expectations in its 31st year of dividend growth with a nice double-digit increase for investors.
Graco Inc. (GGG)
Prediction: 9.7% – 13.9% increase to $1.58 - $1.64
Actual: 10.4% increase to $1.59
Forward yield: 3.52%
This is the 19th year of dividend growth for the fluids engineering company, which is being powered by 30% year-over-year EPS growth. The 10% increase is right in line with Graco’s five-year average growth rate.
Nucor Corporation (NUE)
Prediction: 0.7 – 3.3% increase to $1.52 - $1.56
Actual: 0.7% increase to $1.52
Forward yield: 2.39%
Despite the recovery in EPS for Nucor, the metals company continued its pattern of a penny per share dividend increase. This is the eighth straight year of this dividend growth rate. Nucor has grown dividends for 44 straight years.
Pentair plc (PNR)
Prediction: 8.7 – 11.6% increase to $1.50 - $1.54
Actual: 1.4% increase to $1.40
Forward yield: 1.98%
My prediction was way off for Pentair’s 42nd year of dividend growth. With modest debt and expected EPS growth of 16% this year, I had expected an increase around the company’s five-year average of 9.4%. Instead, we got close to the smallest possible annual increase possible – 2 cents per share.
Roper Industries Inc (ROP)
Prediction: 14.3 – 21.4% increase to $1.60 - $1.70
Actual: 17.9% increase to $1.65
Forward yield: 0.64%
The diversified manufacturer hit the midpoint of my expectation in its 24th year of dividend growth and continues its epic run for income investors.
SEI Investments Corporation (SEIC)
Prediction: 10.7 – 17.9% increase to $0.62 - $0.66
Actual: 7.1% increase to $0.60
Forward yield: 0.83%
The asset manager missed my expectations for its 27th year of dividend growth. The 7% increase is roughly half the five-year average for SEI Investments and far lower than this year’s EPS growth.
Stryker Corporation (SYK)
Prediction: 8.2 – 12.9% increase to $1.84 - $1.92
Actual: 11.8% increase to $1.88
Forward yield: 1.21%
Medical device company Stryker hit the high side of my prediction with a dividend increase in line with its EPS growth. December closes out the 25th year of dividend growth for this S&P 500 component, which means Stryker should join the list of elite Dividend Aristocrats in January 2018.
Prediction: 2.0 – 4.1% increase to $2.00 - $2.04
Actual: 2.0% increase to $2.00
Forward yield: 5.14%
The telecommunications company continued its decade-long history of 4-cent dividend increases with another year of the same.
Urstadt Biddle Properties (UBA)
Prediction: 1.9 – 3.8% increase to $1.08 - $1.10
Actual: 1.9% increase to $1.08
Forward yield: 4.97%
This is the 10th straight year for the REIT with properties from New Jersey to New Hampshire, and the 24th year of dividend growth overall.
Waste Management (WM)
Prediction: 5.9 – 10.6% increase to $1.80 - $1.88
Actual: 9.4% increase to $1.86
Forward yield: 2.16%
20% year-over-year EPS growth powered a nice dividend increase from the disposal and recycling company. The company also announced a $1.25 billion share buyback. This is Waste Management’s 15th straight year of dividend growth.
14 Announcements of Dividend Increases Expected in December
Here are my predictions for the 14 dividend increases I expect in January:
A. O. Smith (AOS)
A. O. Smith, manufacturer of water heaters and other equipment for industrial and residential applications, completes its 25th year of dividend growth at the end of 2017. As a component of the S&P 500, the company will join the S&P 500 Dividend Aristocrats in January. The company has been rewarded well for its expansion into China and is expecting to see another year of double-digit EPS growth in 2017. Smith’s expected 2017 EPS growth of 15% and modest debt load means another year of good dividend growth – I expect it to be on the same order as last year’s 17% increase, but less than the five-year average of 25%.
Prediction: 12.5 – 17.8% increase to $0.63 - $0.66
Predicted Forward Yield: 1.03 – 1.08%
Air Products & Chemicals Inc. (APD)
Air Products & Chemicals, which will begin its 47th year of dividend growth in January, recently reported a 12% increase in adjusted EPS in 2017 and is projecting a 9 – 12% increase in 2018. The specialty chemical company’s debt ratio isn’t too burdensome and its current dividend of $3.80 implies a modest payout ratio of 60%, meaning that I think we can expect a dividend increase on the order of the EPS growth in January. If we get the dividend increase I expect, it’ll be slightly higher than the 5-year growth average of 8.2%.
Prediction: 9.5 – 12.6% increase to $4.16 - $4.28
Predicted Forward Yield: 2.54 – 2.61%
Black Hills Corp (BKH)
Natural gas and electric utility Black Hills is guiding to 5% EPS growth in 2017 and another 3% growth in 2018. The company has been slowly increasing its dividend growth, finally peaking to a two-decade high last year of nearly 6%. This has been the exception, however: Black Hills has a five-year average growth rate of 3.8% and a 10-year average growth rate of 2.7%. With the expected EPS growth this year, I expect Black Hills’ 47th year of dividend growth to be around that five-year average.
Prediction: 3.4 – 4.5% increase to $1.84 - $1.86
Predicted Forward Yield: 3.06 – 3.09%
Cincinnati Financial Corp. (CINF)
Insurer Cincinnati Financial is expected to begin its 57th year of dividend growth in January. Years of modest dividend growth – the company has a 10-year average growth rate of 3.5% - will continue as Cincinnati Financial is seeing downward pressure on earnings. Over the first nine months of the year, EPS are down 18% year-over-year to $2.42. Scaled over the full year, the company is looking at EPS around $3.00. I think we’ll see this year’s dividend increase in the long-term average rate of 3 – 4%.
The good news is that, although growth of the regular dividend continues to be modest, the company continues to reward its investors with the occasional special dividend. In addition to the regular dividend of 50 cents announced in the fourth quarter, Cincinnati Financial announced a special dividend of an additional 50 cents.
Prediction: 2.0 – 4.0% increase to $2.04 - $2.08
Predicted Forward Yield: 2.72 – 2.77%
California Water Service Group (CWT)
California Water Service Group serves nearly 2 million people in California, Washington State, New Mexico and Hawaii. Like most long-established utilities, CWT doesn’t have a fast dividend growth rate – over the last 10 years, the company has compounded its dividend at 2.2%. However, rate increases approved in 2015 are starting to kick in. EPS over the first nine months of 2016 were up nearly 60% to $1.11. Despite a heavy debt load, California Water Service Group has room for another dividend increase like last year’s 4.4% jump, or possibly even higher.
Prediction: 2.8 – 5.6% increase to $0.74 - $0.76
Predicted Forward Yield: 1.63 – 1.68%
Consolidated Edison (ED)
The electric utility has a weak dividend growth record, with a 10-year average growth rate of less than 2%. Things don’t look to get better in 2018, with Con Ed guiding full-year EPS to between flat to down 2.4%. Beyond that, the company has a debt-to-equity ratio of around 100%. With a current dividend of $2.76 and the EPS guidance midpoint at $4.10, the payout ratio of 67% means Con Ed will extend its dividend growth to 44 years, but I don’t expect to see anything higher than last year’s 3% increase.
Prediction: 1.4 – 2.9% increase to $2.80 - $2.84
Predicted Forward Yield: 3.30 – 3.34%
Fastenal Company (FAST)
Fastenal Company will begin its second decade of dividend growth in January. So far this year, the company is seeing nice growth in EPS. In the first nine months, EPS has grown 11% year-over-year. The industrial hardware company operates with a low debt level (22% debt-to-equity) and has compounded its dividend at more than 11% over the last five years. Assuming the EPS growth continues into the fourth quarter, the current dividend of $1.28 implies a payout ratio of 67% - not terribly high, but at a level without a lot of headroom. Because of these contrasting factors, I expect Fastenal to grow its dividend in the high single digits in January.
Prediction: 6.3 – 9.4% increase to $1.36 - $1.40
Predicted Forward Yield: 2.49 – 2.56%
J. B. Hunt Transport (JBHT)
Logistics and shipping company J. B. Hunt is facing a year-over-year drop in EPS. Although small, it doesn’t bode well for a break to the pattern of 4-cent annual increases each year for the last three years. If the 2% EPS drop follows through to the fourth quarter, J. B. Hunt is looking at full-year EPS of $3.74. While the payout ratio of around 25% could support a larger dividend increase, I expect the pressure on EPS means another year of a 4-cent increase, well below the five-year growth average of 10.4%. 2018 will be J. B. Hunt’s 15th straight year of dividend growth.
Prediction: 4.3% increase to $0.96
Predicted Forward Yield: 0.83%
Kimberly-Clark Corporation (KMB)
Last year, Kimberly-Clark broke tradition by announcing its annual increase in January, rather than waiting until February. Regardless of when it occurs, 2018 will be the 45th year of dividend growth for the consumer goods company. The company is guiding full-year EPS to the low end of the range between $6.20 and $6.35, which would represent year-over-year EPS growth of 2.8%. Last year’s increase of 5.4% was right in line with the earnings growth. I expect Kimberly-Clark to grow dividends in line with EPS growth again this year, which would be about half that of the five-year growth average.
Prediction: 2.1 – 4.1% increase to $3.96 - $4.04
Predicted Forward Yield: 3.28 – 3.35%
Bank of the Ozarks, Inc. (OZRK)
The Arkansas-based bank holding company has increased its quarterly dividend by half a cent for each of the last 16 quarters. The company has undertaken a specific effort over the last several years to expand its footprint throughout the south by way of acquisitions. The good news is that, despite the frequent acquisitions, Bank of the Ozarks still has a low debt load (debt-to-equity ratio of 13%). The bad news is that the acquisitions have been financed through secondary stock offerings, which have held the stock price down.
Earnings growth has outpaced the additional stock – over the first nine months of the year, EPS are up 20% year-over-year to $2.21. Assuming this growth holds through the 4th quarter, prospects are good for another year of outstanding dividend growth. Over the last five years, Bank of the Ozarks has compounded dividends that are more than 23%. I expect the company to continue the pattern of quarterly increases of half a cent which – while it doesn’t sound impressive – over time adds up to a really nice dividend growth rate.
Prediction: 2.7% increase to $0.76
Predicted Forward Yield: 1.57%
Polaris Industries Inc. (PII)
Polaris manufactures all-terrain vehicles, motorcycles, snowmobiles, and other off road vehicles. 2017 has been good for Polaris, with the company expecting full-year sales to be up 18% and EPS to be up nearly 40%, powered by dramatic increases in off road vehicles and snowmobiles. The full-year EPS guidance of $4.75 - $4.85 means the company’s payout ratio will fall below 50%, giving Polaris room to grow its dividend. Polaris’ 23rd year of dividend growth will see a nice increase – something on the order of the five-year growth average of 9%.
Prediction: 7.8 – 10.3% increase to $2.50 - $2.56
Predicted Forward Yield: 2.02 – 2.06%
Praxair Inc. (PX)
Praxair’s merger with the British gases and engineering company Linde plc has been approved by shareholders and is on track to complete in the first half of 2018. But between now and then, Praxair will begin its 26th year of dividend growth. Praxair is guiding to adjusted EPS growth of 5.8% in 2017, with a current dividend of $3.15 the payout ratio would be a modest 54%, giving Praxair room for some growth.
Praxair, an S&P 500 component, should join the Dividend Aristocrats index in January, and I think we’ll see a very modest dividend increase ahead of the merger.
Prediction: 4.8 – 6.0% increase to $3.30 - $3.34
Predicted Forward Yield: 2.13 – 2.16%
SJW Corporation (SJW)
This is another utility company expected to announce its annual dividend increase in January. Last year, the California-based water utility surprised to the upside with its dividend increase, rewarding investors with a 7.4% jump – nearly twice the five-year average of 4%. We should see another nice increase from SJW in January. Over the first three quarters of 2017, the company has grown EPS by 6.8% year-over-year. Even if fourth quarter EPS are flat from 2016, that will translate into EPS growth of 5%. I expect this will power SJW’s 51st year of dividend growth to be on the order of last year’s increase.
Prediction: 5.7 – 8.0% increase to $0.92 - $0.94
Predicted Forward Yield: 1.44 – 1.47%
S&P Global, Inc. (SPGI)
Financial intelligence firm S&P Global will grow its dividend growth streak to 45 years in January. S&P Global is killing it on earnings growth, guiding to EPS growth of between 22% and 25% for 2017. Normally, I would expect this to drive 20% dividend growth, but S&P Global is laden with debt (a 400% debt-to-equity ratio). On the plus side, the company’s payout ratio of 25% supports a good increase. On balance then, I expect another nice year of dividend growth, well above the five-year growth average of 10% and roughly double the 10-year growth average of 7.2%.
Prediction: 13.4 – 17.1% increase to $1.86 - $1.92
Predicted Forward Yield: 1.10 – 1.13%
If you enjoyed this article and would like to find out how my predictions turn out at the end of January, please follow me by clicking the "Follow" button next to my name at the top of the article. Thanks!
[This article was updated to correct an error with AOS's predicted forward dividend and yield. Special thanks to Goose Hollow Investments for catching the mistake!]
Disclosure: I am/we are long AOS, JBHT, OZRK.
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: In addition to my current positions, I may take additional positions in any of the stocks mentioned in this article in the near future.