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 August, I provided predictions for 6 dividend growth companies that have historically announced annual payout increases in September.
In addition to the 6 stocks for which I gave predictions, Realty Income Corporation (O) also announced an increase to its monthly dividend, to an annualized $2.646 from $2.64, a 0.3%. This is Realty Income's 3rd dividend increase this year.
Let's take a look at how well I did with my predictions from September before we go to my predictions for October (you can see the article with the original predictions here):
Brady Corporation (BRC)
Prediction: 1.2-2.4% increase to $0.84-0.85
Actual: 2.4% increase to $0.85
Forward yield: 1.94%
Signage and labeling company Brady continued its pattern of very slow dividend growth. This is the 10th straight year of annual dividend growth at or below 2 cents and the 32nd year of dividend growth overall.
Lockheed Martin Corporation (LMT)
Prediction: 9.0-12.0% increase to $8.72-8.96
Actual: 10.0% increase to $8.80
Forward yield: 2.54%
Lockheed Martin earnings rebounded this year after last year's dip. This is the 2nd straight year of 10% dividend growth from the defense and aerospace company and the 16th year of dividend growth. At the same time, Lockheed also increased its share repurchase authority by $1.0 billion, increasing the money to do share repurchases to about $3.7 billion.
Prediction: 5.9-7.4% increase to $4.28-4.34
Actual: 14.9% increase to $4.64
Forward yield: 2.77%
The worldwide restaurant chain saw increased EPS on declining revenues, and I assessed that the declining revenues would convince McDonald's to moderate its 42nd year of dividend growth. Fortunately, for investors, I was wrong - the 15% increase is 50% above the company's 10-year growth rate.
Prediction: 15.5-19.0% increase to $1.94-2.00
Actual: 9.5% increase to $1.84
Forward yield: 1.61%
This was my one optimistic prediction from last month. I had hoped that Microsoft would return to its pattern of double-digit increases after last year's 8% increase. The good news is that dividend growth is accelerating. The bad news is that we need to wait at least one more year for a return to 10%+ dividend growth.
New Jersey Resources (NJR)
Prediction: 6.4-10.1% increase to $1.16-1.20
Actual: 7.3% increase to $1.17
Forward yield: 2.54%
With the utility guiding to EPS growth of 50%, I had hoped for the possibility of a double-digit increase from this utility. Still, the 7% increase this year is nothing to sneeze at - it's slightly above the company's 5-year average of 6%.
Prediction: 1.7-3.4% increase to $2.40-2.44
Actual: 2.1% increase to $2.41
Forward yield: 4.51%
Despite EPS growth year-to-date is nearly 10%, Verizon stuck to its historical pattern of a small increase. This is the telecommunications company's 24th year of dividend growth.
10 Announcements of Dividend Increases Expected in October
Here are my predictions for the 10 dividend increases I expect in October:
Brown & Brown (BRO)
For dividend growth investors, the news from insurer Brown & Brown is all good: the company will hit a quarter-century of dividend growth this year and recently split its stock for the first time in 13 years. In addition to the stock split, long-time investors have been rewarded by an average growth rate of more than 8% annually. In the first half of the fiscal year, despite organic revenue growth of only 5%, EPS grew 26% year-over-year. With the EPS growth, Brown & Brown's payout ratio is around 30%, with lots of room for another nice increase in mid-October.
Prediction: 6.7-13.3% increase to $0.32-0.34
Predicted Forward Yield: 1.08-1.15%
Business services company Cintas has crushed it for dividend growth investors, with seven straight years of double-digit growth, including increases of at least 20% in each of the last three years. Look for Cintas to keep the streak going with another 20%+ increase this year. The company recently announced year-over-year EPS growth of 30% in the first quarter of its fiscal year (which ended August 31st). Furthermore, Cintas is guiding full-year EPS growth to 22%. That EPS growth sets my expectations for Cintas' 36th year of dividend growth, slightly above the 5-year average of 20.4%. (Note: Cintas pays dividends annually, not quarterly like most companies.)
Prediction: 19.8-23.5% increase to $1.94-2.00
Predicted Forward Yield: 0.98-1.01%
Eaton Vance (EV)
Assets under management for the Boston-based investment management firm grew more than 12% over the last year which powered a 30% year-over-year increase in EPS for the first 3 quarters of the year. With EPS growth like that, mid-October will bring Eaton Vance's 38th straight year of dividend growth. With modest debt and a current payout ratio of around 35%, I expect this year's increase to be on the same order as last year's boost of 11%, above the company's 10-year average of 9%.
Prediction: 9.7-12.9% increase to $1.36-1.40
Predicted Forward Yield: 2.60-2.66%
Lincoln Electric (LECO)
Lincoln Electric develops industrial arc welding products and solutions. With a dividend growth streak going back for 23 years and a 10-year compounded growth rate of more than 13%, the company has amply rewarded income investors. 2018 will be another year of nice dividend growth for Lincoln Electric - the company recently announced year-over-year adjusted EPS growth of 25% for the first half of 2018. And with a reasonable debt load and a payout ratio around 40%, October should bring the 2nd consecutive annual 10%+ increase from Lincoln.
Prediction: 19.2-25.6% increase to $1.86-1.96
Predicted Forward Yield: 1.99-2.10%
Middlesex Water Company (MSEX)
Middlesex Water, which provides water and wastewater services to portions of New Jersey and Delaware, saw a 33% jump in EPS in the first half of 2018. This EPS boost came mostly from an increase in its base rate authorized by the New Jersey Board of Public Utilities. This rate increase boost should help the usually sleepy, slow dividend grower (the company has a 5-year average growth rate of 3%) with a nice payout jump this year. 2018 will be the 46th year of dividend growth for the company, and I'm expecting an increase slightly larger than last year's 6% increase.
Prediction: 6.1-8.9% increase to $0.95-0.975
Predicted Forward Yield: 1.96-2.01%
NW Natural (NWN)
NW Natural serves nearly 750,000 customers in the Pacific Northwest with natural gas services. At 62 years, the company has one of the longest dividend growth streaks among publicly-traded companies. NW Natural's increase last year was as small as could be - only a penny a share. This year won't be much better - the company is guiding to flat EPS. I'm expecting another penny per share increase this year, with a small chance of something slightly larger.
Prediction: 0.5-1.6% increase to $1.90-1.92
Predicted Forward Yield: 2.84-2.87%
Prosperity Bancshares (PB)
Unlike many banks, this Texas-based bank holding company has been a fast dividend grower - Prosperity has averaged growth rates of 11.5% over the last 5 and 10 years. Earnings were flat last year, which resulted in a below-average 6% increase. Over the first half of this year, however, Prosperity saw 13% year-over-year growth, which should support a return to the company's usual dividend growth in Prosperity's 19th year of payout increases.
Prediction: 9.7-13.9% increase to $1.58-1.64
Predicted Forward Yield: 2.28-2.36%
With brands like DAP and Rust-Oleum, specialty chemical manufacturer RPM is known for products that benefit from a strong housing market, and the company is certainly benefiting from the current economic upturn. Full-year adjusted EPS are $2.92, up 18% from the prior year. Generally speaking, RPM does the slow and steady thing when it comes to dividend growth. Over the last 5 years, the company has compounded its payout at 7% and over the last 10 years at 5.5%. With the EPS growth this year, I'm looking for a boost in the high single digits, with a small chance of an increase in the double digits.
Prediction: 6.3-10.9% increase to $1.36-1.42
Predicted Forward Yield: 2.09-2.19%
Stepan Company (SCL)
When you wash your clothes, you're probably using chemicals produced by Stepan Company. The specialty chemical company is the largest purchaser of surfactants, which are used by nearly every laundry detergent. Stepan also produces chemicals for agricultural and oilfield users. The company just passed a half-century of dividend growth last year and has averaged payout increases in the mid-7% range over both the last 5 and 10 years. Over the first half of the fiscal year, EPS grew by about 6.5%, but adjusted EPS by less than 3%. In spite of this, with a payout ratio of around 20%, Stepan has plenty of room to maintain its 7% dividend growth this year.
Prediction: 6.7-8.9% increase to $0.96-0.98
Predicted Forward Yield: 1.10-1.13%
V. F. Corporation (VFC)
For a company with such a long dividend growth record (45 years) apparel and footwear company, V. F. Corporation has an outstanding dividend growth rate. Over the last 10 years, the company has compounded dividends by nearly 12% and more recently - over the last 5 years - the growth rate is nearly 18%. VFC is guiding EPS growth to around 13% this year, and I expect that to translate into an increase between last year's 7% jump and the 10-year growth rate.
Prediction: 7.8-11.1% increase to $1.94-2.00
Predicted Forward Yield: 2.08-2.14%
The big surprise this month was the 15% dividend increase from McDonald's. The fact that the board felt comfortable with passing on such a significant increase to shareholders bodes well for the company - especially after many years of small(-ish) dividend increases.
As for the accuracy of my predictions, I got 4 out of 6 correct - and I'll take it.
In addition to the 10 stocks above, I also expect Bank OZK (OZK) - formerly Bank of the Ozarks - to increase its quarterly dividend by half a cent to an annualized 80 cents when it announces earnings in October. This would be OZK's 32nd straight quarterly dividend increase.
The fast pace of dividend increases continues into November, with approximately another 20 companies scheduled to announce their annual increases.
If you enjoyed this article and would like to find out how my predictions turn out at the end of October, please follow me by clicking the "Follow" button next to my name at the top of the article. Thanks!
Disclosure: I am/we are long LECO, OZK.
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 at any time.