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 January, I provided predictions for 9 dividend growth companies that have historically announced annual payout increases in the first half of February.
In addition to the 9 companies for which I gave predictions, there were five other dividend growth companies that announced their annual dividend increases. Archer Daniels Midland (ADM) announced a 4.5% increase to an annualized rate of $1.40, giving the company a forward yield of 3.33%. Dividend Aristocrats 3M (MMM) and Sherwin-Williams (SHW) each announced dividend increases – 3M’s increase was a modest 5.9%, while Sherwin-Williams blew away investors with a 31.4% increase. 3M now has a forward yield of 2.76% and Sherwin-Williams yields 1.03%. Finally, shipping company United Parcel (UPS) announced a 5.5% increase to give it a 2.07% yield, and rail and transport company Union Pacific (UNP) continued its pattern of dividend increases every 6 months with a 10% boost to yield 3.46%.
Let’s take a look at how well I did with my predictions from the first half of February before we go to my predictions for the second half of February (you can see the article with the original predictions here):
(Note: All yields are based on stock prices at the market close on Friday, February 15th.)
Results for the 9 Dividend Increase Predictions from January
Bemis Company (BMS)
Prediction: 3.2 - 4.8% increase to $1.28 - $1.30
Actual: 3.2% increase to $1.28
Forward yield: 2.42%
This will be the last dividend increase for Bemis, as it is merging with Australian packaging company Amcor. The combined company will take the Amcor name.
Church & Dwight (CHD)
Prediction: 12.6 - 16.1% increase to $0.98 - $1.01
Actual: 4.6% increase to $0.91
Forward yield: 1.41%
Despite hitting the expected adjusted EPS growth of 17%, the consumer products company held back this year’s increase to half of its 5-year average. This is Church & Dwight’s 23rd year of dividend growth.
Eversource Energy (ES)
Prediction: 5.9 - 7.9% increase to $2.14 - $2.18
Actual: 5.9% increase to $2.14
Forward yield: 3.05%
The New England based utility hit the low end of my expectations in its 21st year of dividend growth.
Genuine Parts Company (GPC)
Prediction: 8.3 - 12.5% increase to $3.12 - $3.24
Actual: Deferred to second half of February
The automotive parts company should announce its 63rd year of dividend growth right after the President’s Day holiday. I’m pushing forward my prediction.
Jack Henry & Associates (JKHY)
Prediction: 16.2 - 21.6% increase to $1.72 - $1.80
Actual: 8.1% increase to $1.60
Forward yield: 1.20%
With 25% year-over-year EPS growth, I had expected a nice dividend increase from the payment processing services company. Unfortunately for investors, the company’s 16th year of dividend growth was less than half of last year’s 20% boost.
NextEra Energy (NEE)
Prediction: 10.4 - 13.1% increase to $4.90 - $5.02
Actual: 12.6% increase to $5.00
Forward yield: 2.72%
Florida-based NextEra hit the midpoint of my prediction; the company’s 25th annual payout boost was right in line with its 15% EPS growth last year.
Nu Skin (NUS)
Prediction: 8.1 - 15.1% increase to $1.58 - $1.68
Actual: 1.4% increase to $1.48
Forward yield: 2.35%
I had hoped that the return to decent EPS growth would convince the multi-level marketing beauty company to increase its payout more than the 2 cents per year it had been doing for each of the last 4 years. Alas, Nu Skin investors will have to wait at least another year for a decent dividend boost.
Prediction: 7.2 - 8.9% increase to $3.98 - $4.04
Actual: 3.0% increase to $3.82
Forward yield: 3.30%
I was disappointed with Pepsi’s announcement of its 47th annual dividend increase, which was less than half the company’s 5-year growth average.
Perrigo Company plc (PRGO)
Prediction: 7.9 - 11.8% increase to $0.82 - $0.85
Actual: 0.0% increase to $0.76
Forward yield: 1.55%
This was a surprise – the generic drug manufacturer had compounded dividends at 16% over the last 5 years, but the company must be expecting more headwinds, since it decided to defer its annual increase this year.
10 Announcements of Dividend Increases Expected in the Second Half of February
Here are my predictions for the 10 dividend increases I expect in the second half of February:
Analog Devices (ADI)
Analog Devices designs and manufactures integrated chips that modify and amplify radio frequency signals for use in a wide variety of sensor applications. The company has built a 16-year record of dividend growth, with payout increases in the mid-to-high single digits. Over the last 5 and 10 years, Analog Devices has compounded dividends by 7% and 9%, respectively. Although I’d normally expect the company’s adjusted EPS growth of 25% in 2018 to result in a really nice dividend boost, Analog Devices is guiding 1st quarter EPS to a year-over-year drop of 10%. The company’s payout ratio of 30% means there’s room for another year of dividend growth, but I’m not expecting much more than the historical average.
Prediction: 6.3 - 8.3% increase to $2.04 - $2.08
Predicted Forward Yield: 1.93 - 1.97%
Albemarle Corporation (ALB)
Specialty chemical company Albemarle is projecting adjusted EPS growth this year of between 15% and 20%, powered by growth in the company’s Bromine Specialties group. (Bromine is used in fire safety, oilfield drilling, and pharmaceutical manufacturing applications, among others.) This month will bring Albemarle’s 25th straight year of dividend growth, and I expect the potential future S&P 500 Dividend Aristocrat will reward investors with a boost in its payout around the historical 10-year average of 11%.
Prediction: 9.0 - 13.4% increase to $1.46 - $1.52
Predicted Forward Yield: 1.79 - 1.87%
Chubb Limited (CB)
For the most part, the insurer has grown dividends modestly. For example, over each of the last 4 years, the insurer has grown its dividend by 8 cents a share. But the modest dividend growth has been punctuated with a couple of years of year-over-year dividend growth of at least 25%. Overall, Chubb has grown its dividend by an average of 7.5% over the last 5 years. Earlier this month, Chubb reported net income per share growth of 4% and core operating income per share growth of more than 17%. What does this mean for Chubb’s 26th year of dividend growth? Normally, I’d expect something around 10% due to the operating income growth, but it looks like a lot of companies are hedging on their dividend payouts, so I think it’s more likely that we’ll see a 5th year of 8 cent annual dividend growth.
Prediction: 2.7% increase to $3.00
Predicted Forward Yield: 2.25%
Essex Property (ESS)
S&P 500 member Essex Property will complete its 25th year of dividend growth at the end of 2019, making it eligible to become an S&P 500 Dividend Aristocrat in early 2020. Last year, Essex boosted its payout by 6.3%, right at the 10-year growth average, and it looks like we can expect another increase just like it. The company came in with a full-year funds from operations (FFO – a common measure of profitability for REITs) growth of 7%. While next year’s FFO growth is expected to slow, I think we’ll still see an increase in the mid-single digits.
Prediction: 5.9 - 7.0% increase to $7.88 - $7.96
Predicted Forward Yield: 2.83 - 2.85%
McGrath RentCorp (MGRC)
The business-to-business rental company is having a good year. Earnings per share for the first nine months of the year are up 50% and the company is guiding full-year operating profit growth to around 20% over 2017’s results, powered by an increase in demand for the company’s modular buildings. McGrath started firing on all cylinders last year, with a 31% dividend increase, after eight years of 2 cent annual increases. With the income growth expectations, I expect an increase of at least three times the 10-year dividend growth average of 5%.
Prediction: 14.7 - 20.5% increase to $1.56 - $1.64
Predicted Forward Yield: 2.97 - 3.12%
Old Republic International Corporation (ORI)
The Chicago-based insurer saw earnings fall this year, mostly due to unrealized losses on its investment portfolio this year as compared with investment gains last year. Although core EPS (that is, excluding investments) were up more than 50%, Old Republic has a history of minimal dividend growth. Last year, the company increased its dividend by only 2 cents; in each of the 9 years before that, Old Republic grew its dividend by only a penny. Given this EPS pressure, I expect the company to revert to a penny per share increase in its 38th year of dividend growth, with a small chance of another 2-cent increase.
Prediction: 1.3 - 2.6% increase to $0.79 - $0.80
Predicted Forward Yield: 3.78 - 3.82%
Ross Stores (ROST)
The discount retailer has built an impressive dividend growth history, with a 10-year compounded growth average of more than 25%. Ross continues to build out its store count, adding 93 stores (about 6% of the total) over the last year. Beyond that, EPS continues to grow even faster, with nearly 30% year-over-year growth over the last 9 months. Ross is guiding full-year EPS growth to around 17%-18%, so I don’t think that we’ll see another 40% increase like last year, but the company’s 25th straight annual payout boost should be around 20%.
Prediction: 15.6 - 22.2% increase to $1.04 - $1.10
Predicted Forward Yield: 1.11 - 1.17%
Telephone and Data Systems (TDS)
Telecommunications company TDS operates under a variety of business names, the biggest of which is U.S. Cellular. The company has increased dividends for 44 years and, for the most part, has grown its payout very modestly. Over the last 5 and 10 years, TDS has compounded its dividend by less than 5% annually. The company recovered from an earnings loss last year and posted 9-month EPS of $1.04. With a current dividend of 64 cents, the company has plenty of coverage for a decent increase this year, but I suspect TDS’ 45th year of dividend growth will be another modest one.
Prediction: 3.1 - 6.3% increase to $0.66 - $0.68
Predicted Forward Yield: 1.82 - 1.87%
The TJX Companies (TJX)
Like Ross Stores, The TJX Companies has also been a fast-growing discount retailer, with a 10-year compounded dividend growth average of nearly 22%. However, TJX’s story is mixed. The company started the year with a larger store count than Ross, meaning continuing the rapid pace of growth will be more difficult. TJX’s store count grew by less than 3% over the last year, and the company is guiding adjusted EPS growth to 8% this year. Not too shabby, but not something that can sustain a 20%+ dividend growth rate. The good news is that TJX conducted a 2-for-1 stock split back in November and, with a payout ratio of less than 40%, can easily cover a good payout boost. I think we’ll see the company announce an increase in the low teens for its 23rd year of dividend growth.
Prediction: 12.8 - 15.4% increase to $0.88 - $0.90
Predicted Forward Yield: 1.75 - 1.79%
The world’s largest retailer has grown dividends for 44 years, but dividend growth has slowed in the last 5 years. In each year over the last half decade, Walmart has grown its dividend by only 4 cents, resulting in a 5-year average of 2%. Will this be the year that the company breaks the streak? The company is guiding adjusted EPS growth to between 7.5% and 10% for the full fiscal year, so it’s possible, but old habits die hard. I believe that Walmart will hedge its bet a bit and have a 6th year of a 4-cent increase, with the small possibility of an 8-cent increase.
Prediction: 1.9 - 3.8% increase to $2.12 - $2.16
Predicted Forward Yield: 2.12 - 2.16%
I’m starting to see companies pull back on their dividend increases. I was particularly disappointed by Perrigo skipping (or at least deferring) its annual increase. (The company can still keep its year-over-year dividend growth streak alive by increasing its dividend later in the year.) Similarly, I was surprised by Church & Dwight’s and Jack Henry’s smaller-than-expected increases, despite expectations of very nice EPS growth. All this may mean that these companies are hunkering down in anticipation of a future downtrend.
Of course, I was also disappointed with my predictions over the last two weeks. Of the 8 companies that announced increases and for which I gave predictions, I only got three correct and overestimated five of them. (As noted above, Genuine Parts will likely announce their annual increase in the second half of February.)
Let's see how my 10 predictions for the next two weeks come out - we'll know soon enough!
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Disclosure: I am/we are long ADM. 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.