Those of you who follow this series of articles know that I track the dividend increases of a variety of long-term dividend growth companies. Back at the end of March, I provided predictions for 16 dividend growth companies that have historically announced annual payout increases in April.
But first, I was surprised by one out-of-cycle announcement of a payout increase. ADP (ADP), which just announced its annual dividend increase in the 4th quarter of 2017, announced a 9.5% dividend increase to an annualized $2.76. The payroll and business services company has a forward yield of 2.30%.
Let’s take a look at how well I did with my predictions from April before we go to my predictions for May (you can see the article with the original predictions here):
Prediction: 9.5 – 19.0% increase to $2.76 - $3.00
Actual: 5.9% increase to $2.92
Forward yield: 1.73%
Apple didn’t disappoint this year – not only is this the 8th year of dividend growth for the consumer electronics designer and retailer, this latest increase is well above the company’s usual 10% growth rate. Apple also announced a new $100 billion share repurchase program.
Cullen/Frost Bankers (CFR)
Prediction: 7.9 – 11.4% increase to $2.46 - $2.54
Actual: 17.5% increase to $2.68
Forward yield: 2.31%
Cullen/Frost’s 25th year of dividend growth was right in line with 2017’s EPS growth of 17%.
Costco Wholesale Corporation (COST)
Prediction: 12.0 – 17.0% increase to $2.26 - $2.34
Actual: 14.0% increase to $2.28
Forward yield: 1.16%
Costco’s 15th year of dividend growth was as I expected and right around the company’s 5-year average growth rate of 13%.
Franklin Electric (FELE)
Prediction: 7.0 – 9.3% increase to $0.46 - $0.47
Actual: 11.6% increase to $0.48
Forward yield: 1.09%
A miss is a miss, even if it’s just by a penny. Franklin Electric’s 25th year of dividend growth was above my expectations; the double-digit increase is above the company’s 5-year average of 8%.
H. B. Fuller (FUL)
Prediction: 5.0 – 8.3% increase to $0.63 - $0.65
Actual: 3.3% increase to $0.62
Forward yield: 1.23%
Despite the expectations of rapid EPS growth, the heavy debt load from the acquisition of Royal Adhesives and Sealants weighed on the specialty chemical company’s 49th year of dividend growth.
W. W. Grainger (GWW)
Prediction: 3.1 – 4.7% increase to $5.28 - $5.36
Actual: 6.3% increase to $5.44
Forward yield: 1.92%
Grainger’s dividend growth is picking up. I had expected the business products supplier’s 47th year of growth to be below 5% (like the last two years), but I was pleasantly surprised by the 6% increase.
Prediction: 4.7 – 6.7% increase to $6.28 - $6.40
Actual: 4.7% increase to $6.28
Forward yield: 4.29%
Dividend growth at Big Blue continues to slow. The company’s 23rd year of dividend growth hit the low end of my expectations.
Johnson and Johnson (JNJ)
Prediction: 7.1 – 8.9% increase to $3.60 - $3.66
Actual: 7.1% increase to $3.60
Forward yield: 2.81%
Johnson & Johnson’s 56th year of dividend growth was right in line with the company’s 10-year growth average of 7.4%.
People’s United Financial (PBCT)
Prediction: 1.4 – 4.3% increase to $0.70 - $0.72
Actual: 1.4% increase to $0.70
Forward yield: 3.75%
This is the 10th straight year of 1-cent annual dividend increases from the regional banking company.
Procter and Gamble (PG)
Prediction: 4.0 – 6.0% increase to $2.8688 - $2.9240
Actual: 4.0% increase to $2.8688
Forward yield: 3.94%
The consumer goods company extended its dividend growth streak to 61 years. The 4% increase is slightly less than the 5 – 8% guidance for EPS growth this year.
Tanger Factor Outlets Center (SKT)
Prediction: 3.6 – 6.6% increase to $1.42 - $1.46
Actual: 2.2% increase to $1.40
Forward yield: 6.32%
With a heavy debt load and a modest 4% growth in funds from operations in 2017, Tanger’s 25th year of dividend growth was below my expectations and less than half the retail REIT’s 5-year average growth rate.
Southern Company (SO)
Prediction: 2.6 – 3.4% increase to $2.38 - $2.40
Actual: 3.4% increase to $2.40
Forward yield: 5.17%
The southeastern U. S. electric utility’s modest dividend growth is right in line with the company’s average growth over the last decade. This is the 17th year of payout increases for Southern Company.
Sonoco Company (SON)
Prediction: 2.6 – 5.1% increase to $1.60 - $1.64
Actual: 5.1% increase to $1.64
Forward yield: 3.15%
Despite guidance for 2018 EPS growth of 15%, investors in the packaging and display products company. Sonoco’s 36th year of dividend growth is right in line with its 5-year growth average of 5.5%
UGI Corporation (UGI)
Prediction: 7.0 – 10.0% increase to $1.07 - $1.10
Actual: 4.0% increase to $1.04
Forward yield: 2.14%
Although adjusted EPS grew 11% for UGI, the natural gas utility kept its 31st year of dividend growth below the 5-year average of 7%.
Prediction: 5.8 – 9.1% increase to $3.26 - $3.36
Actual: 2.9% increase to $1.44
Forward yield: 2.22%
Well, I missed the boat on this one. Although adjusted EPS were up 18%, the new tax law caused a hit to GAAP earnings, forcing the chip manufacturer to offer its smallest increase since it started paying dividends in 2004.
ExxonMobil Corporation (XOM)
Prediction: 5.8 – 9.1% increase to $3.26 - $3.36
Actual: 6.5% increase to $3.28
Forward yield: 4.22%
We saw a return to traditional levels of dividend growth for ExxonMobil. The oil giant’s 36th year of dividend growth is right around the 5-year average of 7%.
13 Announcements of Dividend Increases Expected in May
Here are my predictions for the 13 dividend increases I expect in May:
Artesian Resources Corporation (ARTNA)
Artesian Resources provides water and wastewater utility services to the DelMarVa peninsula. The company has raised its dividend every 6 months and, like most utilities, has built modest dividend growth history, with 5 and 10-year growth rates in the low 3% range. However, investors have reason for higher expectations this year – Artesian Resources just reported EPS growth of 7% in 2017. The company should announce its next dividend increase in the first week of the month and the increase in EPS will likely mean an above average increase in the first of Artesian’s two increases this year – the company’s 22nd year of dividend growth.
Prediction: 1.0 – 3.1% increase to $0.95 - $0.97
Predicted Forward Yield: 2.47 – 2.53%
Bunge Limited (BG)
Bunge is undergoing a restructuring, adjusting its business and reducing overhead costs to improve the company’s competitiveness. Unfortunately, this is a multi-year process for the agribusiness company and the EPS results in 2017 show why the restructuring is necessary. Full year EPS were down 58% to $1.94 from 2016’s $4.67. With a current dividend of $1.84, Bunge’s payout ratio is nearly 100% and chances are slim-to-none for Bunge to come close to matching its 5-year dividend growth average of 11%. I expect a minimal increase to extend Bunge’s record of dividend growth to 17 years, but not much more.
Prediction: 1.1 – 2.2% increase to $1.86 - $1.88
Predicted Forward Yield: 2.56 – 2.59%
Cardinal Health (CAH)
Cardinal Health has grown dividends for 33 years. The company, which provides healthcare services and products for healthcare providers, has built a very nice dividend growth history, with a 5-year compounded growth average of nearly 14%. Last year, in expectation of flat EPS growth in 2017 and 2018, Cardinal Health added just 3% to its dividend payment. The company’s EPS growth in 2017 was just 3% and the expectations for 2018 are no better, with guidance of between a reduction of 3% to an increase of 2% for this year’s EPS growth. Investors in Cardinal Health will have to wait at least until 2019 for a return to historic dividend growth.
Prediction: 1.0 – 3.0% increase to $1.8680 - $1.9052
Predicted Forward Yield: 2.84 – 2.89%
Connecticut Water Service (CTWS)
Connecticut Water provides water and wastewater service to more than 425,000 people across Connecticut and Maine. The company has been growing its customer base through acquisitions and increased the number of customers by 10,000. This led to revenue growth of 8% and EPS growth of 2.4% to a net $2.17 in FY 2017. Connecticut Water’s 49th year of dividend growth will be in line with its 10-year growth average of 3%.
Prediction: 2.5 – 4.2% increase to $1.22 - $1.24
Predicted Forward Yield: 1.78 – 1.81%
Expeditors International of Washington (EXPD)
With the economy rebounding freight shipments are increasing, resulting in this shipping and logistics company saw very nice revenues and EPS growth in 2017. Revenues are up 13% - powered by an increase in airfreight revenues of 17% - and EPS grew by 14% to $2.69, giving Expeditors International a very modest payout ratio of 31%. Last year, the company’s dividend increase was 5%, well below its 10-year average of 11.6%. May will bring the company’s 24th year of dividend growth, and we should see a return to Expeditors International’s historic growth rate. (Note: Expeditors International pays dividends twice a year, not quarterly like most dividend-paying companies.)
Prediction: 9.5 – 14.3% increase to $0.92 - $0.96
Predicted Forward Yield: 1.43 – 1.49%
FactSet supplies information to financial and investment professionals and has been a great dividend growth stock for the last 19 years. Over the last 5 years, the company has averaged an annual compound growth rate of nearly 13%; last year’s increase of 12% to $2.24 a share was on par for the company’s dividend increases. FactSet grew EPS in 2017 by 14% and is projecting EPS growth of 14% - 17% for 2018. All this adds up to another outstanding year of dividend growth for FactSet.
Prediction: 11.6 – 15.2% increase to $2.50 - $2.58
Predicted Forward Yield: 1.31 – 1.35%
Flowers Foods (FLO)
Earnings for the owner of bakery brands like Nature’s Own and Tastykake fell 4% last year to 89 cents a share. Because of the fall in EPS, Flowers Foods is looking to restructure to reduce costs. With the restructuring, the company is guiding 2018 adjusted EPS to between $1.04 and $1.16, an increase of nearly 24% at the midpoint. However, like most guidance there are a lot of assumptions, including the ability to pass on increased costs to customers. Given the uncertainties in the guidance and the payout ratio of 75% with the current 68 cent dividend, I think Flowers Foods’ 17th year of dividend growth will come in much lower than the 5-year average of 10%.
Prediction: 2.9 – 5.9% increase to $0.70 - $0.72
Predicted Forward Yield: 3.09 – 3.19%
Leggett & Platt (LEG)
The leading U. S. manufacturer of adjustable beds, and components for bedding and furniture has grown dividends for 46 straight years and built modest 5 and 10-year dividend growth histories in the mid-single digits. Full year EPS fell 1% to $2.46 in 2017, but Leggett & Platt is guiding 2018 EPS growth to between 8% and 16%. Beyond the remainder of this year, the company is targeting 2020 EPS of $3.50 – a compounded growth rate of more than 12%. Given next year’s guidance and Leggett & Platt’s aggressive targets, I expect a dividend increase on the order of last year’s 6% increase with a small chance of something a little smaller
Prediction: 4.2 – 6.9% increase to $1.50 - $1.54
Predicted Forward Yield: 3.71 – 3.81%
Lowe’s Companies (LOW)
Like FactSet above, home improvement retailer Lowe’s Companies is another dividend growth powerhouse. With four straight years of 20%+ year-over-year dividend growth, Lowe’s has an enviable 10-year average of more than 19%. Back in February, the company announced a 10% gain in adjusted EPS for FY 2017 and provided guidance of 33% EPS growth into FY 2018. The only risk is the company’s heavy debt overhang – a debt-to-equity ratio of nearly 300%. I think that Lowe’s will scale back on the dividend growth this year – the company’s 35th year of payout increases – but still reward investors with a nice boost.
Prediction: 12.2 – 17.1% increase to $1.84 - $1.92
Predicted Forward Yield: 2.19 – 2.29 %
MSA Safety Incorporated (MSA)
Like Leggett & Platt above, 2018 will be the 47th straight year of dividend growth for MSA Safety. And that’s where the similarity ends. While Leggett & Platt manufactures bedding components and equipment, MSA Safety manufactures and supplies safety equipment worldwide. And in 2017 MSA’s adjusted EPS grew by more than 30%, mostly due to the full year effects of an acquisition completed in mid-2017 and from a lower tax rate. Given the dramatic growth, I’m looking for MSA’s 47th year of dividend growth to be well above the company’s 10-year average of 5.1%.
Prediction: 8.6 – 11.4% increase to $1.52 - $1.56
Predicted Forward Yield: 1.75 – 1.80%
RLI Corporation (RLI)
Specialty insurer RLI is doing well in its core business, with operating EPS up 10% in 2017 and another 36% in the first quarter of 2018. However, when accounting for all income sources, net EPS were down 9% in 2017 and 40% year-over-year in the first quarter. Despite this, RLI’s current payout ratio of 36% (when compared to 2017’s full year EPS) gives the insurer plenty of room for RLI’s 43rd year of dividend growth. On top of that, the tax reform passed in late 2017 should help power earnings higher. I think RLI will reward investors with a payout increase of at least the 5-year average of 6% and possibly something larger.
Prediction: 6.0 – 9.5% increase to $0.89 - $0.92
Predicted Forward Yield: 1.40 – 1.44%
Tiffany & Company (TIF)
The manufacturer of upscale and custom jewelry saw sales grow 4% year-over-year in FY 2017 and, after adjusting for charges due to the tax cut law and impairments, saw EPS grow by 10% to $4.13. With a current dividend of $2.00, Tiffany’s sports a payout ratio of less than 50%. Tiffany’s sports a 5-year average growth rate of nearly 10% and it is poised to continue this nice dividend growth into its 16th straight year of increases. Last year, Tiffany’s increased its dividend by 11% and I think we’ll see another dividend increase at about the same level.
Prediction: 9.0 – 11.0% increase to $2.18 - $2.22
Predicted Forward Yield: 2.15 – 2.19%
Weyco Group (WEYS)
Weyco Group designs and markets footwear under a variety of brand names including Florsheim, Stacy Adams and BOGS. Weyco’s dividend growth has been slow and steady, with 4 cent annual increases in each of the last 6 years. Fiscal year 2017’s year-over-year EPS growth is perfectly consistent with the dividend growth rate: 2.6%, or 4 cents, above 2016’s $1.56. Given this, I think Weyco will extend its dividend growth rate to 37 years in May with another 4 cent payout increase.
Prediction: 4.5% increase to $0.92
Predicted Forward Yield: 2.47%
Honestly, I’m a little disappointed in my predictions this month. While I’m happy about the 9 predictions that I got right, I didn’t foresee UGI’s and Xilinx’s small dividend increases. And I didn’t expect Cullen/Frost’s blowout dividend increase, about double what I had predicted.
Next month’s increases will vary from minimal growth from companies experiencing decreases in EPS like Bunge and Cardinal Health, while FactSet, Lowe’s Companies and Tiffany’s should continue to build on their excellent dividend history.
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Disclosure: I am/we are long EXPD, 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: I may take a position in any of the stocks mentioned in this article in the near future.