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. At the end of February, I provided predictions for 4 dividend growth companies that have historically announced annual payout increases in March. In addition, one company that I expected to announce its increase in February delayed its announcement.
Let's take a look at how well I did with my 5 predictions from March before we go to my predictions for April (you can see the article with the original predictions here):
(All yields are based on stock prices at the market close on Friday, March 29th.)
Results for the 5 Dividend Increase Predictions from March
Prediction: 2.4-4.8% increase to $1.72-1.76
Actual: 2.4% increase to $1.72
Forward yield: 2.51%
The consumer products company hit the low end of my expectations, about half the 5-year dividend growth average of 5%. This is Colgate-Palmolive's 56th year of dividend growth.
General Dynamics (GD)
Prediction: 9.7-11.8% increase to $4.08-4.16
Actual: 9.7% increase to $4.08
Forward yield: 2.41%
The defense contractor's 28th year of dividend growth was right around the 10% average growth rate.
Prediction: 7.3-10.5% increase to $2.66-2.74
Actual: Deferred until April
5G company Qualcomm hasn't announced its second quarter dividend payment yet, so I'm pushing my prediction to April.
Prediction: 11.5-15.2% increase to $3.87-4.00
Actual: 8.6% increase to $3.77
Forward yield: 2.07%
Despite double-digit EPS growth in 2018 and expectations for more in 2019, defense contractor Raytheon missed my predictions for its 15th year of dividend growth.
Ross Stores (ROST)
Prediction: 15.6-22.2% increase to $1.04-1.10
Actual: 13.3% increase to $1.02
Forward yield: 1.10%
I had rolled my prediction for Ross Stores forward from last month's article. The discount retailer missed my prediction in its 25th year of dividend growth, but a 13% increase is nothing to sneeze at.
14 Announcements of Dividend Increases Expected in April
Here are my predictions for the 14 dividend increases I expect in April:
Apple has increased dividend payments each year since resuming them in 2012 and has grown them by nearly 11% annually since 2013. Last year's above average increase of 16% was powered by 2017 EPS growth of 24%. For 2018, EPS growth accelerated, with EPS up nearly 30% to $11.91. And while not a driver of earnings, the recent ruling by a federal judge that Qualcomm (QCOM) owes Apple $1 billion in royalties can't hurt. The current payout ratio of 25% means there's plenty of room for another nice increase in the payout. I'm expecting Apple's 8th consecutive year of dividend growth to be in line with last year's 16% boost.
Prediction: 13.7-18.5% increase to $3.32-3.46
Predicted Forward Yield: 1.75-1.82%
Cullen/Frost Bankers (CFR)
The Texas-based financial company continues to benefit from oil and gas production in the Permian Basin. Cullen/Frost recently reported full-year EPS growth in 2018 of 25% to $6.90 and, with that type of growth, is poised to build on last year's 17% dividend increase with another nice increase this year. The company currently pays a dividend of $2.68, giving it a payout ratio of less than 40%. I'm expecting Cullen/Frost - which is building on a quarter century of dividend growth - to boost its payout about 4 times the company's 10-year average less than 5%.
Prediction: 17.2-21.6% increase to $3.14-3.26
Predicted Forward Yield: 3.23-3.36%
Costco Wholesale (COST)
Costco operates 770 warehouse stores across the world, with nearly 70% of them in the United States. The company has been very rewarding for dividend growth investors, having compounded dividends by 13.5% over the last decade. Costco recently reported sales and income numbers for the first half of its fiscal year and so far, it's been another good year - sales were up nearly 9%, led by 26% growth in e-commerce sales. This drove year-over-year EPS growth to 23% over the same period. All of this was on top of a 17% boost in EPS for the full fiscal 2018. I'm looking for another year of mid-teens growth with a bias to the high end of that range for Costco's 16th year of dividend growth.
Prediction: 13.2-19.3% increase to $2.58-2.72
Predicted Forward Yield: 1.07-1.12%
H.B. Fuller (FUL)
Adhesives developer and manufacturer H.B. Fuller has completed the acquisition of Royal Adhesives into its business and is seeing the benefits. 2018 full-year EPS were up 18% on an adjusted basis to $3.00 and the company is guiding 2019 EPS growth to a wide range of between 5% and 15%. The acquisition caused the company to pull back on last year's dividend boost - at 3.3%, it was about a third of the 5-year average of 10%. The company continues to be burdened with a heavy debt load, so I expect Fuller's 50th year of dividend growth to be slightly below the average but higher than last year's boost.
Prediction: 6.5-9.1% increase to $0.66-0.68
Predicted Forward Yield: 1.36-1.40%
W.W. Grainger (GWW)
Grainger, wholesale provider of industrial and other business products, has grown dividends for 47 years. The company is guiding EPS growth in 2019 to between 2.5% and 8.5% and stated that it is anticipating buying back between $450 million and $600 million in shares in 2019 and paying out between $310 million and $325 million in dividends. Do the calculations and that works out to a dividend boost of between 3% and 10%. This is less a prediction than an exercise in mathematics, but I'll go with Grainger's guidance for its 48th year of dividend growth.
Prediction: 2.9-9.6% increase to $5.60-5.96
Predicted Forward Yield: 1.86-1.98%
Despite a 12% growth in revenue from cloud services, IBM's full-year adjusted EPS was up just 1% year-over-year to $13.81. Furthermore, the company is setting near-zero growth expectations for 2019's EPS. The technology behemoth has averaged dividend growth of more than 12% over the last decade, but last year managed an increase of less than 5%. Given the minuscule (if any) EPS growth, I expect IBM's 24th year of dividend growth to be around the same percentage as last year.
Prediction: 3.8-5.1% increase to $6.52-6.60
Predicted Forward Yield: 4.62-4.68%
Johnson & Johnson (JNJ)
Income investors have been rewarded by health care giant Johnson & Johnson for 56 years. The health care behemoth recently announced annual sales growth of 6.7% and EPS growth of 12%, not a bad feat for a company with annual sales of $82 billion and a market cap of $365 billion. The EPS growth is what I look to and the company's guidance for this year's EPS growth is between 4% and 6% on top of last year's growth. The company sports a reasonable debt load and a modest payout ratio of 44%. Given all of this, I expect Johnson & Johnson's 57th straight year of payout boosts to be right in line with the average dividend growth rate of 7%.
Prediction: 6.7-8.9% increase to $3.84-3.92
Predicted Forward Yield: 2.75-2.80%
People's United Financial (PBCT)
People's United had a good year in 2018 - EPS were up 26% to $1.31. The New England-based financial services company provides commercial and personal banking services as well as wealth management services across six states. While the company's 26-year history of dividend growth is impressive, the big caveat is that over the last decade, People's United has grown its annual dividend by only a penny a share. Is this the year that they break the streak? With the EPS growth it's possible, but old habits die hard and I think they'll stick with another 1-cent increase. I do think that there's a small chance that this year's payout increase might be a little larger, so I'll account for that in my prediction.
Prediction: 1.4-2.9% increase to $0.71-0.72
Predicted Forward Yield: 4.31-4.38%
Procter & Gamble (PG)
With a history that dates back to 1837, Procter & Gamble is one of the oldest continually operating companies in the United States. Its dividend history is impressive as well - the company has rewarded investors with 62 years of dividend growth. At 5%, the company's average growth rate isn't great, but it looks like the company is getting some of its mojo back. After a 35% drop in EPS in 2018, Procter & Gamble expects to recover about half of that and is guiding full-year EPS to $4.22, giving the company an implied payout ratio of 68%. The company's debt load isn't onerous, but I expect them to play it safe. After all, you don't survive nearly two centuries by taking unnecessary risks.
Prediction: 4.0-6.0% increase to $2.9836-3.0409
Predicted Forward Yield: 2.87-2.92%
Southern Company (SO)
Utility Southern Company provides electrical and natural gas services to 9 million customers. Like many utility companies, Southern Company's EPS growth - and, by extension, its dividend growth - is nothing to write home about. The company has compounded dividends over the last decade by less than 4% and in each of the last two years has grown its annual payout by 8 cents. The recently announced earnings release didn't provide any information to change my expectations. Southern Company grew its adjusted EPS by less than 2% in 2018 and is guiding 2019 EPS to between a drop of 3% and an increase of 1%. The company's payout ratio is already near 80%; it might be able to support another 8-cent increase in its 18th straight year of dividend growth, but even that's doubtful.
Prediction: 1.7-3.3% increase to $2.44-2.48
Predicted Forward Yield: 4.72-4.80%
Sonoco Products Company (SON)
For packaging company Sonoco - which has boosted its payout for 36 years - the adjusted EPS growth of more than 20% in 2018 is good news and is a change of pace for what is a traditionally slow-growth company. Furthermore, the company is following that up with expectations of 14% year-over-year GAAP EPS growth in 2019. Historically, Sonoco has a modest dividend growth history (in line with its earnings growth), with 5- and 10-year averages below 6% and 5%, respectively. And over each of the last three years, Sonoco has grown its dividend by 8 cents. This may be the year that the company breaks the streak, but I think the company will play it safe.
Prediction: 4.9-6.1% increase to $1.72-1.74
Predicted Forward Yield: 2.80-2.83%
UGI Corporation (UGI)
Unlike most utility companies, UGI has a decent dividend growth rate. Despite a 4% increase last year, the natural gas and electricity provider has compounded its payout at more than 7% annually over the last decade. This year will probably be a repeat of 2018's payout increase - UGI is guiding full-year EPS growth to around 4%. Furthermore, UGI saw an EPS drop in the first quarter of 2019 of 20% compared with the same period last year. What all this means is that investors can expect another very modest boost in UGI's payout for its 32nd year of dividend growth.
Prediction: 3.8-5.8% increase to $1.08-1.10
Predicted Forward Yield: 1.95-1.98%
Integrated chip manufacturer Xilinx has a 15-year history of dividend growth and with a 10-year average growth rate of 10%, the company has been good to dividend growth investors. Last year was a disappointment - driven by a 14% drop in EPS, Xilinx's payout boost was a tiny 3%. However, this year, the company should return to its usual growth rate. With EPS in the first three quarters of the year at $2.53, Xilinx has already surpassed all of last year's EPS of $1.99. Projecting forward, Xilinx may be looking at EPS growth this year of as much as 70%, which should support a very nice dividend increase this year. I'm expecting the company's 16th year of dividend growth to be in excess of the 10-year average.
Prediction: 11.1-15.3% increase to $1.60-1.66
Predicted Forward Yield: 1.26-1.31%
Exxon Mobil (XOM)
The energy giant has rewarded investors for 36 years and, recently, increased its growth plans through 2025. The company's earnings dipped in 2016, but recovered in 2017; the growth continued in 2018, with EPS up 5.4% year-over-year. This positions Exxon Mobil for another payout increase at the end of April. Last year's 6.5% boost was slightly above the 5-year average of 5.6%. The company carries a modest debt load and, despite a payout ratio of 67%, Exxon Mobil has room for a payout increase around the 5-year average.
Prediction: 4.9-6.7% increase to $3.44-3.50
Predicted Forward Yield: 4.26-4.33%
With only four companies that I track reporting dividend increases, there's not much to summarize. I'm happy about the two predictions that I got correct but, once again, I tended to overestimate a couple of the companies increases.
I tried to compensate my predictions for April to account for the pullback in dividend growth that I've seen recently. If I did this successfully, we should see four double-digit increases including technology companies Apple and Xilinx. But with three utilities part of the mix, April will be dominated by increases in the low-to-mid single digits.
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Disclosure: I am/we are long XOM. 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.