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 July, I provided predictions for 11 dividend growth companies that have historically announced annual payout increases in August.
There was one other significant stock that announced its 2nd dividend increase this year: Altria (MO) increased its annual payout to $3.20 from $2.80, a 14.3% increase. This year Altria has grown its dividend by more than 20%; it ended 2017 with an annualized payout of $2.64.
Let’s take a look at how well I did with my predictions from August before we go to my predictions for September (you can see the article with the original predictions here):
Badger Meter (BMI)
Prediction: 3.8 – 7.7% increase to $0.54 - $0.56
Actual: 15.4% increase to $0.60
Forward yield: 1.09%
Last month, I said of Badger Meter: “[2017’s] increase of 13% is unlikely to be repeated this year”. Well, was I wrong – despite EPS growth of 1.5%, the developer of flow measurement equipment beat last year’s payout increase, doubling the high end of my expectations in its 26th year of dividend growth.
Community Bank System (CBU)
Prediction: 5.9% increase to $1.44
Actual: 11.8% increase to $1.52
Forward yield: 2.30%
Community Bank System broke its streak of 4 or 8 cent increases this year with a nice 12% payout boost. This is the bank holding company’s 27th year of dividend growth.
Carlisle Companies (CSL)
Prediction: 10.8 – 16.2% increase to $1.64 - $1.72
Actual: 8.1% increase to $1.60
Forward yield: 1.26%
This niche manufacturer just missed my expectations in its 42nd year of dividend growth. This year’s 8% increase is less than Carlisle’s 5-year growth average of 13%.
Dover Corporation (DOV)
Prediction: 6.4 – 8.5% increase to $2.00 - $2.04
Actual: 2.1% increase to $1.92
Forward yield: 2.24%
A 7% fall in EPS limited the diversified manufacturer’s 63rd year of dividend growth.
Federal Realty Investment Trust (FRT)
Prediction: 6.0 – 8.0% increase to $4.24 - $4.32
Actual: 2.0% increase to $4.08
Forward yield: 3.13%
Despite increased growth in funds from operations, this is the 2nd straight year of a sub-average dividend increase from the REIT. The minimal increase marks Federal Realty’s 51st year of dividend growth.
Harris Corporation (HRS)
Prediction: 10.5 – 14.0% increase to $2.52 - $2.60
Actual: 20.2% increase to $2.74
Forward yield: 1.69%
The defense company rewarded investors beyond my expectations with its 20% increase this year. This year’s payout increase (Harris’ 17th year of dividend growth) is twice the defense company’s 5-year growth rate of 10%.
International Flavors and Fragrances (IFF)
Prediction: 5.8 – 8.7% increase to $2.92 - $3.00
Actual: 5.8% increase to $2.92
Forward yield: 2.24%
As expected, IFF’s 16th year of dividend growth was limited by last year’s drop in EPS along with the fact that the company is in the middle of a merger with Israeli chemical company Frutarom. The 5.8% increase is roughly half of the average growth rate over the last decade.
Illinois Tool Works (ITW)
Prediction: 12.8 – 16.7% increase to $3.52 - $3.64
Actual: 28.2% increase to $4.00
Forward yield: 2.88%
The tool manufacturer completely blew away my expectations in its 56th year of dividend growth. This is the 5th straight year of double-digit dividend growth for ITW.
MGE Energy (MGEE)
Prediction: 2.4 – 4.1% increase
Actual: 4.7% increase to $1.35
Forward yield: 2.06%
MGE Energy beat my expectations slightly in its 41st year of dividend growth. This year's increase is slightly above the company's 5-year growth average of 3.6%.
Note: In last month’s article, I miscalculated the projected dividend for MGEE. I stand by the expected percentage increase, but please ignore my predicted annual dividend.
Nordson Corporation (NDSN)
Prediction: 13.3 – 16.7% increase to $1.36 - $1.40
Actual: 16.7% increase to $1.40
Forward yield: 1.01%
The 55th year of dividend growth for the manufacturer of fluid dispensing products was powered by EPS growth of more than 30%; this year’s increase is in line with the company’s 5-year average of more than 15%.
The Scotts Miracle-Gro Company (SMG)
Prediction: 3.8 – 6.6% increase to $2.20 - $2.26
Actual: 3.8% increase to $2.20
Forward yield: 2.94%
Downward pressure on earnings of Scott’s was the key to keeping the lawn and garden care company’s 10th year of dividend growth to well below its historic 5-year average of 10%.
6 Announcements of Dividend Increases Expected in September
Here are my predictions for the 6 dividend increases I expect in September:
Brady Corporation (BRC)
With last year’s dividend increase of a penny and a 10-year growth average of less than 4%, labeling and signage company Brady hasn’t blown away income investors with its dividend growth record over the last 32 years. In fact, in each of the last 9 years, the company has grown its dividend by either 1 or 2 cents a year. Brady is guiding 2018 EPS growth to between 6 – 9% but, despite the decent earnings growth rate, I doubt the company will change its conservative ways with regards to its dividend. I expect a 10th year of very modest dividend growth.
Prediction: 1.2 – 2.4% increase to $0.84 - $0.85
Predicted Forward Yield: 2.08 – 2.11%
Lockheed-Martin Corporation (LMT)
Defense contractor Lockheed-Martin is successfully recovering from a temporary drop in EPS last year. The company is projecting full year EPS to between $16.75 and $17.05, down only 3% from two years ago, but more than double last year’s $6.89/share. Despite a heavy debt load, Lockheed-Martin has managed to compound dividends at more than 12% annually over the last 5 years. This month should bring Lockheed-Martin’s 16th year of dividend growth and with a current dividend of $8.00, the company has plenty of coverage for another increase in line with last year’s 10% growth.
Prediction: 9.0 – 12.0% increase to $8.72 - $8.96
Predicted Forward Yield: 2.72 – 2.80%
After some difficulties a couple of years ago, the worldwide restaurant chain seems to have recovered its mojo – EPS was up 17% to $6.37 in the latest full fiscal year. The EPS growth is continuing into this year; first half EPS are up another 14%. Extrapolating out, this year’s EPS should exceed $7.00. This is the good news. The bad news is that the EPS growth seems to be powered by cost-cutting and share buybacks. Unfortunately, revenues were down 11% year-over-year in the first half of the fiscal year. While the payout ratio of less than 60% means a 42nd year of dividend growth for McDonald’s, I expect to see something on the order of last year’s 7% increase, which is below the 10-year growth average of 10%.
Prediction: 5.9 – 7.4% increase to $4.28 - $4.34
Predicted Forward Yield: 2.64 – 2.68%
Technology company Microsoft (they’ve gone well beyond just software) will mark its 16th straight year of dividend growth in September. The company has focused on returning cash to investors, compounding its payout at more than 14% annually over the last decade. The question, of course, is whether Microsoft can keep that pace up. The dividend growth fell off in 2017, with a 7.7% increase to an annualized $1.68, but I think we’ll see a return to “normal” payout growth this year. The company reported adjusted EPS growth of 18% in the last fiscal year (which ended on June 30th) which should power good growth this year.
Prediction: 15.5 – 19.0% increase to $1.94 - $2.00
Predicted Forward Yield: 1.73 – 1.78%
New Jersey Resources (NJR)
Over each of the last three years, this New Jersey-based utility that serves customers in 41 states and Canada has grown its payout by at least 6%, giving the company a 5.8% 5-year growth average. This year investors in New Jersey Resources might be looking at a blowout year – the company is guiding full year adjusted EPS to a midpoint of $2.65, up more than 50% from last year’s $1.73. This gives plenty of coverage for the current dividend of $1.09 and for a very nice dividend increase. My prediction ranges from the mid-6% at the lower end with a small chance of a double-digit increase.
Prediction: 6.4 – 10.1% increase to $1.16 - $1.20
Predicted Forward Yield: 2.54 – 2.63%
Telecommunications company Verizon generally increases its dividend minimally each year. The company’s 5-year and 10-year average growth rates are each below 4%. So when the company shows 1st half EPS growth of nearly 10% and is looking at full year revenue growth in the low-to-mid single digits, my hope for a large dividend increase is tempered somewhat. Last year’s 2.2% increase to an annualized $2.36 has been par for Verizon, and I don’t expect this year’s increase (the company’s 24th straight year) to be much higher.
Prediction: 1.7 – 3.4% increase to $2.40 - $2.44
Predicted Forward Yield: 4.41 – 4.49%
I’ve noticed over the last 6 months that my predictions have been consistently low for quite a few companies. It’s clear to me – at least anecdotally – that many companies are taking advantage of the tax cuts late last year to grow their dividends. Five of the 11 companies I gave predictions for grew their dividends faster than I expected.
Perhaps the biggest surprise to me was Badger Meter – EPS growth of less than 2% can’t support 15% dividend increases, at least not in the long term. The company’s board clearly sees growth on the horizon.
Next month, things slow down. However, October will be busy for dividend increases – I’m expecting 17 companies that I track to make their dividend growth announcements.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.
Additional disclosure: I may take a position in any of the stocks mentioned in this article in the near future.