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 September, I provided predictions for 10 dividend growth companies that have historically announced annual payout increases in October.
In addition to the 10 stocks for which I gave predictions, there were three companies that also announced their annual dividend increases. Hot water heater manufacturer A. O. Smith (AOS) moved their annual increase up from the 1st quarter and is now paying 88 cents a share, giving the stock a forward yield of 1.98%. Credit company Visa (V) grew their dividend by 19% to an annualized $1.00 a share, giving the company a forward yield of 0.77%. Finally, insurer Mercury General (MCY) announced an increase of a penny per share to its annual dividend. With a payout of $2.51, the company has a forward yield of 4.13%.
Let’s take a look at how well I did with my predictions from October before we go to my predictions for November (you can see the article with the original predictions here):
10 Dividend Increases Announced in October
Brown & Brown (BRO)
Prediction: 6.7 – 13.3% increase to $0.32 - $0.34
Actual: 6.7% increase to $0.32
Forward yield: 1.15%
The insurer’s 25th year of dividend growth was slightly below the long-term growth average of 8% and builds on the company’s recent stock split.
Prediction: 19.8 – 23.5% increase to $1.94 - $2.00
Actual: 26.5% increase to $2.05
Forward yield: 1.15%
Cintas’ continues its tradition of outstanding dividend growth in its 36th year of dividend increases. This is the business services company’s 8th year of 20%+ dividend growth.
Eaton Vance (EV)
Prediction: 9.7 – 12.9% increase to $1.36 - $1.40
Actual: 12.9% increase to $1.40
Forward yield: 3.18%
Powered by 12% increase in assets under management, investment company Eaton Vance hit the high end of my prediction range with an increase that was above the average growth rate over the last decade. This is Eaton Vance’s 38th year of dividend growth.
Lincoln Electric (LECO)
Prediction: 19.2 – 25.6% increase to $1.86 - $1.96
Actual: 20.5% increase to $1.88
Forward yield: 2.39%
This is the 2nd consecutive dividend boost by the industrial welding company that’s in excess of 10%, and the 24th year of dividend growth overall.
Middlesex Water Company (MSEX)
Prediction: 6.1 – 8.9% increase to $0.95 - $0.975
Actual: 7.3% increase to $0.96
Forward yield: 2.11%
This New Jersey-based water utility rewarded investors with its 2nd straight 6%+ dividend increase.
NW Natural (NWN)
Prediction: 0.5 – 1.6% increase to $1.90 - $1.92
Actual: 0.5% increase to $1.90
Forward yield: 2.86%
This is the 4th straight year of a penny-per-share increase from this natural gas utility. The miniscule increase keeps the dividend growth streak alive at 63 years for NW Natural.
Prosperity Bancshares (PB)
Prediction: 9.7 – 13.9% increase to $1.58 - $1.64
Actual: 13.9% increase to $1.64
Forward yield: 2.52%
This year marked a return to fast dividend growth for this Texas-based banking company. This is Prosperity’s 19th straight year of dividend growth.
Prediction: 6.3 – 10.9% increase to $1.36 - $1.42
Actual: 9.4% increase to $1.40
Forward yield: 2.32%
RPM’s hit the middle of my prediction range with its 44th annual dividend increase.
Stepan Company (SCL)
Prediction: 6.7 – 8.9% increase to $0.96 - $0.98
Actual: 11.1% increase to $1.00
Forward yield: 1.19%
Stepan Company begins its 2nd half century of dividend growth with this double-digit payout boost.
V. F. Corporation (VFC)
Prediction: 5.4 – 8.7% increase to $1.94 - $2.00
Actual: 10.9% increase to $2.04
Forward yield: 2.51%
Note: In last month’s article, I incorrectly calculated the percentages for my prediction. I’ve corrected it above.
V. F. Corporation’s 46th year of dividend growth was in line with the company’s 10-year growth average.
12 Dividend Increase Announcements Expected in November
Here are my predictions for the 12 dividend increases I expect in November:
Atmos Energy (ATO)
This Texas-based energy company serves 3 million customers across 8 states and has grown dividends for 3 decades. The company targets 6 – 8% annual EPS growth and is guiding full year EPS to that range. With a current dividend of $1.94 and expected full year EPS of $3.95 at the midpoint, Atmos has plenty of room for its 31st year of payout increases. I’m looking for dividend growth this year between the 5-year average of 6% and last year’s increase of 7.8%.
Prediction: 6.2 – 8.2% increase to $2.06 - $2.10
Predicted Forward Yield: 2.19 – 2.23%
Becton, Dickinson and Company (BDX)
Up until last year, Becton, Dickinson had a steady pattern of annual dividend increases of around 10%. Earnings pressure last year, in conjunction with the merger with C. R. Bard, pushed the company to drop its payout increase to less than 3%. This year, however, the merger is complete and is adding to the company’s bottom line, and the company is guiding EPS growth to 16%. Look for the health care company’s 47th year of dividend growth to be between its 5-year and 10-year averages of 10% and 11% respectively, with a small chance of something larger.
Prediction: 10.0 – 14.0% increase to $3.30 - $3.42
Predicted Forward Yield: 1.45 – 1.51%
Brown-Forman Company (BF.B)
Liquor producer Brown-Forman has grown dividends for 34 years. The company owns a variety of brands including Jack Daniel’s whiskey and el Jimador tequila. The company is projecting sales growth of 6 – 7% for 2019 and performed well in the first quarter, with double-digit sales growth across nearly all lines, with the exception of Finlandia vodka. Brown-Forman’s management has led to good steady dividend growth – over the last 5 years, the company has compounded dividends by more than 9%, including last year’s 8% increase. To top it all off, the company did a 5-to-4 stock split in February. With a current payout ratio of less than 40% and expected income growth in the high single digits, I expect another increase around 8%.
Prediction: 7.6 – 10.0% increase to $0.68 - $0.695
Predicted Forward Yield: 1.48 – 1.51%
Emerson’s restructuring into the two business segments of Automation Solutions and Commercial & Residential Solutions appears to be paying off. After reduced EPS resulted in three years of 2-cent increases, Emerson is guiding to EPS growth of more than 30%. The company has also gone on a buying spree, announcing or completing six acquisitions since the beginning of the year. All this bodes well for Emerson’s 62nd year of dividend growth. I think the company might hedge on dramatically increasing its dividend, but I’m looking for an increase in the high single digits or possibly just slightly above 10% - a little less than twice the 10-year average of 6%.
Prediction: 5.2 – 10.3% increase to $2.04 - $2.14
Predicted Forward Yield: 3.05 – 3.20%
Hormel Foods (HRL)
Three of Hormel Foods’ four business segments saw good sales growth over the first 9 months of the fiscal year (the one exception was the Grocery Products Segment). After EPS stalled last year, it looks like things are back on track for the food company. Hormel’s year-over-year EPS growth over the first 9 months of the year is 18%, consistent with the full year guidance of 15 – 24% EPS growth. This should let Hormel return to its historic annual dividend growth of 17%.
Prediction: 14.7 – 22.7% increase to $0.86 - $0.92
Predicted Forward Yield: 2.00 – 2.14%
Lancaster Colony Corporation (LANC)
Like Hormel above, Lancaster Colony – owner of the Marzetti, Sister Schuberts, NY Bakery, and Flat Out Bread brands – is another food company that is seeing very nice earnings growth this year. After growing EPS by 17% last year, Lancaster just reported year-over-year EPS growth of 33% in the first fiscal quarter. The company is completely debt-free and is positioned well for its 56th year of dividend growth. Although Lancaster could reward investors with a 20% increase, I expect the company to stay with its historical dividend growth of around 10%
Prediction: 8.3 – 13.3% increase to $2.60 - $2.72
Predicted Forward Yield: 1.50 – 1.57%
Matthews International Corporation (MATW)
Matthews International has two major business lines: memorialization/cremation products and corporate branding. The company has built an outstanding dividend growth record – over the last 10 years, Matthews has compounded dividends at 12%. The company is seeing EPS growth of nearly 7% over the first 3 quarters of the year and currently sports a payout ratio of less than 25%. Although this year’s EPS growth is a little low, I expect Matthews’ 25th year of dividend growth to be around 10%.
Prediction: 7.9 – 13.2% increase to $0.82 - $0.86
Predicted Forward Yield: 2.01 – 2.10%
MDU Resources Group (MDU)
MDU Resources, based in North Dakota, is not only an energy utility, but also produces and markets construction materials across 48 states. The company should announce its 28th year of dividend growth in the middle of November. Over each of the last 8 years, MDU has increased its payout by 2 cents, giving the company a 10-year average of 3.3%. This year should bring another year of a 2-cent increase, as MDU is guiding full year EPS growth from flat to down about 10%. In fact, I think there’s a decent chance that the company may increase its dividend by only a penny this year.
Prediction: 1.3 – 2.5% increase to $0.80 - $0.81
Predicted Forward Yield: 3.17 – 3.21%
McCormick & Co. (MKC)
Spices and flavoring company McCormick has grown dividends for 31 years and has compounded them at nearly 9% over the last decade. McCormick acquired Reckitt Benckiser’s food division last year, adding the French’s, Frank’s RedHot and Cattlemen’s brands to its portfolio. This has driven much of a projected 21% sales increase and EPS growth of 16% in 2018. With a current dividend of $2.08 and projected adjusted EPS of around $5.00, the payout ratio of 40% leaves plenty of room for a dividend increase like last year’s 10% boost.
Prediction: 9.6 – 13.5% increase to $2.28 - $2.36
Predicted Forward Yield: 1.59 – 1.64%
South Jersey Industries (SJI)
The energy utility has made several moves over the last year to shore up its finances and rework its business. In addition to divesting their solar energy business, the company also acquired two smaller gas utilities from Southern Company (SO), expanding their service base into Maryland. With that, the company is guiding full year adjusted EPS to a midpoint of $1.61, up 31% from 2017’s EPS. Flat earnings last year meant a small payout increase but with this year’s earnings growth, I expect South Jersey’s 19th annual dividend increase to be more in line with the 5-year growth average of 6%.
Prediction: 5.5 – 7.3% increase to $1.18 - $1.20
Predicted Forward Yield: 3.86 – 3.92%
Sysco Corporation (SYY)
The food service company saw sales growth in both the United States and internationally. Even better, adjusted EPS were up 26% to $3.14 in fiscal year 2018, which concluded in August. Historically, Sysco has compounded dividends in the 5 – 6% range. However, EPS growth last year powered a 9% dividend increase to the current annual payout of $1.44. With a current payout ratio below 50%, Sysco is well-positioned for its 43rd year of dividend growth. I expect it to be similar to last year’s increase.
Prediction: 8.3 – 11.1% increase to $1.56 - $1.60
Predicted Forward Yield: 2.18 – 2.24%
Vectren Corporation (VVC)
This year will be Vectren’s 59th – and possibly last – year of dividend growth. Shareholders of the Indiana-based natural gas company approved a merger with CenterPoint Energy (CNP) in late August; the combined company will take CenterPoint’s name. It isn’t clear at this point if the new company will continue Vectren’s dividend growth policy. Until the merger closes in the first quarter of 2019, Vectren shareholders can expect a modest dividend increase in early November. Given the costs of the merger, which caused an 8% drop in EPS over the first half of the year, I expect Vectren to announce a modest dividend increase in line with the company’s 5-year average of 4%.
Prediction: 3.3 – 5.6% increase to $1.86 - $1.90
Predicted Forward Yield: 2.60 – 2.65%
With six of the 10 companies announcing 10%+ dividend increases, it was a good month for dividend growth investors.
The usual suspects came through as expected. Lincoln Electric and Cintas led this month with increases above 20%, with Prosperity Bank, Stepan Company, Eaton Vance, and V. F. Corporation adding at least 10% to their dividends.
The pace of dividend increases continues through the rest of the year. Beyond the 12 companies above expected to announce increases in November, another dozen companies should announce their annual increases in December. I’ll be back at the end of November with my predictions for those companies.
If you enjoyed this article and would like to find out how my predictions turn out at the end of November, 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 AOS, HRL, 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.