Abbott, Graco Expected To Announce Double-Digit Increases In December

Summary

• The announcements of dividend increases in November were disappointing. Only one – Hormel – grew its dividend by more than 10%.
• Particularly surprising were BDX and EMR, which both announced sub-3% dividend growth.
• Despite this, I still expect almost half of the 11 stocks that I’m monitoring to announce 10%+ growth. ABT, GGG, and SYK should lead the pack.

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 October, I provided predictions for 10 dividend growth companies that have historically announced annual payout increases in November.

In addition to the 10 stocks for which I gave predictions, two other companies also announced their annual dividend increases. Diversified niche manufacturer Roper Technologies (ROP) announced a 12.1% increase to $1.85, giving the stock a forward yield of 0.62%, while Nucor (NUE) announced a 5.3% increase to $1.60 on the last day of the month. The metals producer now has a forward yield of 2.65%.

Let's take a look at how well I did with my predictions from November before we go to my predictions for December (you can see the article with the original predictions here):

(Note: all yields are based on stock prices at the end of Friday, November 30th.)

Atmos Energy (ATO)

Prediction: 6.2-8.2% increase to $2.06-2.10

Actual: 8.2% increase to $2.10

Forward yield: 2.20%

Atmos's 31st year of dividend growth continues the energy company's nice dividend growth history. The 8% increase is above average for Atmos.

Becton, Dickinson and Company (BDX)

Prediction: 10.0-14.0% increase to $3.30-3.42

Actual: 2.7% increase to $3.08

Forward yield: 1.22%

This announcement really surprised me. This is the second straight year of sub-3% growth for the healthcare company.

Brown-Forman Company (BF.B)

Prediction: 7.6-10.0% increase to $0.68-0.695

Actual: 5.1% increase to $0.664

Forward yield: 1.39%

Brown-Forman's 35th year of dividend growth is below the distilled spirits producer's 5-year average of 9%.

Emerson (EMR)

Prediction: 5.2-10.3% increase to $2.04-2.14

Actual: 1.0% increase to $1.96

Forward yield: 2.90%

Despite EPS growth of 30%, Emerson decided to continue the pattern of annual 2-cent increases into its 4th year. This is Emerson's 62nd year of dividend growth overall.

Hormel Foods (HRL)

Prediction: 14.7-22.7% increase to $0.86-0.92

Actual: 12.0% increase to $0.84

Forward yield: 1.86%

Hormel's 52nd year of dividend growth brings its 9th straight year of double-digit growth.

Lancaster Colony Corporation (LANC)

Prediction: 8.3-13.3% increase to $2.60-2.72

Actual: 8.3% increase to $2.60

Forward yield: 1.44%

Lancaster Colony's 56th year of dividend growth is far less than the EPS growth of 33% seen in the first quarter of the fiscal year, but that's par for the course for this debt-free conservatively-run company.

Matthews International Corporation (MATW)

Prediction: 7.9-13.2% increase to $0.82-0.86

Actual: 5.3% increase to $0.80

Forward yield: 1.90%

Matthews' 25th year of dividend growth was less than half the memorialization and branding company's 10-year average of 12%.

MDU Resources Group (MDU)

Prediction: 1.3-2.5% increase to $0.80-0.81

Actual: 2.5% increase to $0.81

Forward yield: 3.06%

This is the 9th straight year of 2-cent dividend increases for the North Dakota-based energy utility.

McCormick & Co. (MKC)

Prediction: 9.6-13.5% increase to $2.28-2.36

Actual: 9.6% increase to $2.28

Forward yield: 1.52%

The spices and flavorings company hit the low end of my range in its 32nd year of dividend growth.

South Jersey Industries (SJI)

Prediction: 5.5-7.3% increase to $1.18-1.20

Actual: 2.7% increase to $1.15

Forward yield: 3.69%

Given the energy utility's 31% EPS growth this year, I had expected SJI to resume its historic growth rate of 6%, and I am disappointed that it didn't. This is South Jersey's 19th year of dividend growth.

Sysco Corporation (SYY)

Prediction: 8.3-11.1% increase to $1.56-1.60

Actual: 8.3% increase to $1.56

Forward yield: 2.31%

Despite year-over-year EPS growth of 26%, the food service company went with a dividend increase similar to last year's 9% bump. This is Sysco's 43rd straight year of dividend growth.

Vectren Corporation (VVC)

Prediction: 3.3-5.6% increase to $1.86-1.90

Actual: 6.7% increase to $1.92

Forward yield: 2.67%

Vectren is due to merge with CenterPoint Energy (CNP) in the first quarter of 2019, so this will be the natural gas company's last dividend increase - at least under the Vectren name.

11 Announcements of Dividend Increases Expected in October

Here are my predictions for the 11 dividend increases I expect in December:

ABM Industries (ABM)

ABM provides support to companies for maintaining their facilities, including janitorial, electrical, HVAC, landscaping, and parking services. At 52 years, the company has a long history of dividend growth. Over the last decade, however, the growth rate has been a modest 3.4%. This year, ABM is guiding EPS growth to between 6% and 11%, an unusually large increase for the modest grower. Despite this, ABM's CEO has warned about a tight labor market, which is putting pressure on profit margins. Because of this, I expect another year of modest dividend growth.

Prediction: 2.9-5.9% increase to $0.70-0.72

Predicted Forward Yield: 2.21-2.27%

Abbott (ABT)

Abbott has been good to dividend growth investors. The healthcare company has a dividend growth history going back 46 years and has compounded its dividend at nearly 15% annually for the last 5 years. Although last year's 6% increase was an improvement over 2016's 2% growth, it's still a far cry from the company's historical growth rate. I think Abbott will return to its usual growth rate this year - the company is guiding to 15% EPS growth, and the current payout ratio of 45% leaves room for a double-digit increase.

Prediction: 12.5-16.1% increase to $1.26-1.30

Predicted Forward Yield: 1.70-1.76%

CH Robinson Worldwide (CHRW)

The third-party logistics provider has benefited this year from the strong U.S. economy. Nearly all of the 36% growth in EPS this year so far has been from C.H. Robinson's North American Surface Transportation division. Over the last 5 years, the company's dividend growth has been very modest - around 5%. With flat earnings last year, the company restricted its increase to only 4 cents (2.2%). The nice EPS growth this year will support a larger increase; it might even end up being twice the company's 10-year growth average of 7%.

Prediction: 9.8-14.1% increase to $2.02-2.10

Predicted Forward Yield: 2.19-2.27%

Ecolab (ECL)

2018 will be Ecolab's 31st year of dividend growth. The developer of water, energy and hygiene technologies grew its dividend by less than 6% last year, well below the company's 10-year average growth rate of more than 13%. The company recently reduced its full year EPS guidance to between 11% and 13% growth, due mostly to higher costs for raw materials and impacts from currency exchange rates. Given the reduction in expected EPS growth, I'm looking for a payout increase higher than last year's but no higher than the 10-year growth rate.

Prediction: 7.3-12.2% increase to $1.76-1.84

Predicted Forward Yield: 1.10-1.15%

Graco Inc. (GGG)

The manufacturer of fluids and coatings management products is seeing a nice jump in earnings so far this year - over the first 3 quarters, EPS are up 33% year over year. The company has rewarded investors well: on top of last year's 10% increase, Graco split its stock 3-for-1 last December. Also, the company has compounded dividends at 8% over the last decade and by nearly 10% over the last five years. With the nice EPS jump so far this year, I expect another double-digit increase in Graco's payout in December; this increase will mark the 20th year of dividend growth for Graco.

Prediction: 11.3-20.8% increase to $0.59-0.64

Predicted Forward Yield: 1.34-1.45%

Pentair plc (PNR)

Comparing EPS growth in order to predict this year's dividend increase for Pentair will be difficult due to the spinoff of Pentair's Electrical business into a separate publicly traded company, nVent Electrical plc (NVT) back in May. With the spinoff, Pentair cut its dividend from $1.40 to 70 cents; nVent's current dividend of 70 cents means that shareholders that kept both stocks did not see their dividend cut.

With Pentair having increased dividends for the last 41 years, I expect the company to continue to grow its payout. Given that the industrial equipment company's adjusted EPS growth is in the double-digits and with the uncertainty of the recent spinoff, I expect a dividend increase around or above the 10-year average growth rate of 7.5%.

Prediction: 7.1-14.3% increase to $0.75-0.80

Predicted Forward Yield: 1.76-1.87%

SEI Corporation (SEIC)

Asset manager SEI Corporation saw assets under management increase 11% in the 3rd quarter of the year, and EPS is up by 39% in the first 9 months of the year. The company has grown dividends for 27 years and compounded them by more than 15% over the last decade. With the excellent EPS growth this year, I expect SEI to improve on the high single-digit dividend growth of the last 5 years and bring dividend growth back into the double digits. One thing potential investors should know is that the company pays dividends semi-annually, not quarterly.

Prediction: 13.3-20.0% increase to $0.68-0.72

Predicted Forward Yield: 1.27-1.34%

Stryker Corporation (SYK)

Stryker Corporation started its 2nd quarter century of dividend growth in 2018. It's been a dividend growth powerhouse since 1992, regularly growing the dividend by at least 10% most years and compounding its dividend at 18% over the last decade. This December should bring another year of double-digit growth for the medical equipment manufacturer. Stryker is guiding full year sales growth to around 7% and EPS growth to 14%. I expect the company 26th annual dividend increase will be in the mid-teens.

Prediction: 12.8-17.0% increase to $2.12-2.20

Predicted Forward Yield: 1.21-1.25%

AT&T (T)

Telecommunications company AT&T hasn't wowed investors with its dividend growth over the last decade. The company's 10-year dividend growth average is a very modest 2.3%, representing a decade of 4-cent annual increases. This year may be different. However, the company is guiding adjusted EPS for the full year to about $3.50, which is year-over-year growth of nearly 15%. Possibly mitigating AT&T's 34th year of dividend growth is a debt-to-equity load of 100%. The big question is whether AT&T will use this year's EPS growth to reward investors or continue the pattern of 4-cent increases. My money is on another 4-cent increase, with a decent chance for something larger.

Prediction: 2.0-5.0% increase to $2.04-2.10

Predicted Forward Yield: 6.53-6.72%

Urstadt Biddle Properties (UBA)

Urstadt Biddle will complete 25 years of dividend growth at the end of 2018. The company has never been a fast dividend grower - the last decade has consisted of 7 years of 1-cent increases, followed by 3 years of 2-cent increases, giving the retail REIT a 10-year dividend growth average of around 1.3%. However, so far this year, funds from operations (a proxy for EPS for REITs) are up 20% over the first 9 months of the year. So, will this be the year that Urstadt Biddle shareholders see a decent dividend increase? Possibly, but old habits die hard. I think that we'll see a chance of a slightly larger dividend increase, but nowhere near a double-digit increase.

Prediction: 1.9-5.6% increase to $1.10-1.14

Predicted Forward Yield: 5.34-5.54%

Waste Management (WM)

Waste Management is guiding EPS growth to nearly 30% in 2018 and has a good start over the first 3 quarters: EPS is up 38% year over year. The company's collection and disposal business is going gangbusters, offsetting a decline in recycling earnings. December should bring Waste Management's 16th year of dividend growth and with the nice EPS growth, I expect a payout boost larger than last year's 9% increase and at least twice as large as the company's 10-year compounded growth average of 5.6%.

Prediction: 10.8-15.1% increase to $2.06-2.14

Predicted Forward Yield: 2.20-2.28%

Summary

About half the companies came in lower with their dividend announcements than I expected. I was most disappointed with Becton, Dickinson - I had expected that the return to double-digit EPS growth would mean a nice dividend bump this year. Even Hormel, with its 12% increase, fell short of my expectations.

My expectations were based on strong EPS growth from several of these companies. A question that I'm asking myself is whether these companies are becoming more conservative in terms of payouts due to some concerns about the future. Are more companies preparing for a downturn by, for example, paying down debt? It's worth asking, and I might look into it in a future article.

I'll be back at the end of December with my results from this article, and my predictions for January when I expect about 17 companies 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 December, please follow me by clicking the "Follow" button next to my name at the top of the article. Thanks!

Analyst’s Disclosure: I am/we are long HRL. 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.

I may take a position in any of the stocks mentioned in this article in the near future.