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 in the middle of February, I provided predictions for 11 dividend growth companies that have historically announced annual payout increases in the second half of February.
Of those 11 companies, one - Ross Stores (NASDAQ:ROST) - deferred its announcement to March. But in addition to the 10 companies that did announce increases, there were three other dividend growth companies that also announced their annual dividend increases. Coca-Cola (KO) announced a 2.6% increase to an annualized rate of $1.60, giving the company a forward yield of 3.53%. Best Buy (BBY) – which I expected to announce in March – moved its announcement forward and raised its dividend by 11.1% to an annualized $2.00. Best Buy now yields 2.95%. Finally, The Home Depot (HD) announced a whopping 32% increase in its dividend to increase its forward yield to 2.94%. Home Depot’s annual dividend is now $5.44 a share.
Let’s take a look at how well I did with my predictions from the second half of February before we go to my predictions for March (you can see the article with the original predictions here):
(Note: all yields are based on stock prices at the market close on Friday, March 1st.)
Results for 11 Dividend Increase Predictions from the Second Half of February
Analog Devices (ADI)
Prediction: 6.3 – 8.3% increase to $2.04 - $2.08
Actual: 12.5% increase to $2.16
Forward yield: 1.99%
Despite a warning from the company that 1st quarter EPS would fall 10%, Analog Devices’ 17th straight annual boost was larger than the company’s 10-year average growth rate of 9%.
Albemarle Corporation (ALB)
Prediction: 9.0 – 13.4% increase to $1.46 - $1.52
Actual: 9.7% increase to $1.47
Forward yield: 1.62%
The specialty chemical company’s 25th year of dividend growth was slightly less than the 10-year average of 11%.
Chubb Limited (CB)
Prediction: 2.7% increase to $3.00
Actual: 2.7% increase to $3.00
Forward yield: 2.24%
As expected, the insurance company announced a plan to raise its dividend by 8 cents – the 5th straight year of 8 cent annual growth.
Essex Property (ESS)
Prediction: 5.9 – 7.0% increase to $7.88 - $7.96
Actual: 4.8% increase to $7.80
Forward yield: 2.79%
The California-based residential REIT’s dividend boost this year was slightly less than the 10-year average growth rate.
Genuine Parts Company (GPC)
Prediction: 8.3 – 12.5% increase to $3.12 - $3.24
Actual: 5.9% increase to $3.05
Forward yield: 2.79%
Genuine Parts has a dividend growth record dating back to the late '50s. Despite guidance of 20% EPS growth this year, the company’s payout boost was right in line with last year’s 7% increase.
McGrath Rentcorp (MGRC)
Prediction: 14.7 – 20.5% increase to $1.56 - $1.64
Actual: 10.3% increase to $1.50
Forward yield: 2.51%
Despite expectations of 20% growth in operating profit, McGrath hedged a bit on its payout boost this year. This is the company’s 27th year of dividend growth.
Old Republic International Corporation (ORI)
Prediction: 1.3 – 2.6% increase to $0.79 - $0.80
Actual: 2.6% increase to $0.80
Forward yield: 3.81%
This is the 2nd straight year of 2-cent annual dividend increases for the Chicago-based insurer.
Ross Stores (ROST)
Prediction: 15.6 – 22.2% increase to $1.04 - $1.10
Actual: Deferred until March
The discount retailer is waiting until March to announce its annual dividend increase. I’m rolling my prediction forward.
Telephone and Data Systems (TDS)
Prediction: 3.1 – 6.3% increase to $0.66 - $0.68
Actual: 3.1% increase to $0.66
Forward yield: 2.05%
Telecommunications company TDS’s 46th year of dividend growth was a modest one and below the company’s 10-year average of 5%.
The TJX Companies (TJX)
Prediction: 12.8 – 15.4% increase to $0.88 - $0.90
Actual: 17.9% increase to $0.92
Forward yield: 1.77%
It’s another year of nice dividend growth for TJX Companies. This is the 23rd year of dividend growth for the owner of the TJ Maxx, Marshall’s, and HomeGoods store chains.
Prediction: 1.9 – 3.8% increase to $2.12 - $2.16
Actual: 1.9% increase to $2.12
Forward yield: 2.16%
Dividend growth has slowed to a crawl for the world’s largest retailer. This is the 6th straight year where Walmart has increased its payout by 4 cents.
4 Announcements of Dividend Increases Expected in March
Here are my predictions for the 4 dividend increases I expect in March:
The maker of popular consumer brands, along with Hill’s Science Diet pet food, saw mixed results in FY 2018. Although EPS were up 20% year-over-year, the company started to see earnings decrease in the 4th quarter. Moreover, Colgate-Palmolive is projecting a small decrease in EPS in fiscal 2019. I don’t think this will radically change the company’s dividend policy – as a very mature company, Colgate isn’t known for its very fast dividend growth in the first place. While the company’s 10-year growth rate is close to 8%, over the last 5 years that growth rate drops to less than 5%. I expect Colgate’s 56th year of dividend growth to be in line with this 5-year rate and around last year’s 5% increase.
Prediction: 2.4 – 4.8% increase to $1.72 - $1.76
Predicted Forward Yield: 2.61 – 2.67%
General Dynamics (GD)
Defense contractor continued to fire on all cylinders in 2018, led by a near doubling of IT segment revenues (mostly due to acquisitions). Overall, full year EPS were up 17% from 2017, which drove down its current payout ratio to 33%. This leaves lots of room for another year of good dividend growth. Ordinarily, I’d say that this EPS growth would lead to a dividend boost of close to 20%. However, the one downside is that General Dynamics is guiding 2019 EPS growth to 3% - 4%, so with a low payout ratio but the potential for slowing EPS growth going forward, I expect General Dynamics’ 28th year of dividend growth to be around the company’s average growth rate of 10%.
Prediction: 9.7 – 11.8% increase to $4.08 - $4.16
Predicted Forward Yield: 2.41 – 2.46%
Wireless technology company Qualcomm is locked in multiple lawsuits with Apple (AAPL) over licensing fees and royalties over Qualcomm’s technologies. The lawsuits have impacted fiscal 2018 earnings, with last year’s EPS down 14% to $3.69. Although this, along with the heavy debt load that Qualcomm is carrying (450% debt-to-equity), would usually mean a limited dividend increase, FY19 started off with a bang: first quarter EPS was up 25%. I expect Qualcomm’s 17th year of dividend growth to be around last year’s 9% boost, less than the company’s 5-year average of 13%.
Prediction: 7.3 – 10.5% increase to $2.66 - $2.74
Predicted Forward Yield: 4.91 – 5.06%
Raytheon is the second of two defense contractors that will announce their annual dividend increase in March (General Dynamics, above, being the other one). Raytheon just reported fiscal year 2018 EPS growth of 46% to $10.15, with the major movers being its Intelligence, Information and Services, and Integrated Defense Systems segments. Even better, the company is guiding its 2019 EPS growth to another 13%. Last year’s payout boost of 9% was below the Raytheon’s 10-year average of 12%, but with the recent and expected EPS growth, I expect we’ll see a return to double-digit growth in the company’s 15th straight year of dividend increases.
Prediction: 11.5 – 15.2% increase to $3.87 - $4.00
Predicted Forward Yield: 2.08 – 2.15%
Last month I mentioned that I was starting to see companies pull back on their dividend increases and I moderated my expectations accordingly. This resulted in my predictions improving slightly - of my 10 predictions for companies that made their announcements, I was accurate for 5, overestimated 3, and underestimated 2 announcements.
TJX Companies was the most impressive, beating even my prediction of a dividend increase in the low to mid double-digit percentages. And even for those increases that I overestimated, my expectations weren’t dramatically off like they were for the first half of February. All this is confirming – albeit anecdotally – my belief that many companies are hedging on their dividend increases.
Are these companies seeing something in the economy that concerns them? It will be interesting to see how this plays out going forward.
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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.