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 end of April, I provided predictions for 15 dividend growth companies that have historically announced annual payout increases in May. We’ll take a look at those before we go to my predictions for June (you can see the article with the original predictions here):
(All yields are based on stock prices at the market close on Friday, May 31.)
Results for the 15 Dividend Increase Predictions from May
Bunge Limited (BG)
Prediction: 4.0 – 7.0% increase to $2.08 - $2.14
Actual: 0% increase to $2.00
Forward yield: 3.82%
I expected a moderate dividend increase from the agribusiness company. Unfortunately for investors, Bunge has decided to defer, and possibly skip, its dividend increase this year. Since the payout increase is in the middle of the year, the company will retain its year-over-year dividend growth record.
Cardinal Health (CAH)
Prediction: 2.0 – 4.0% increase to $1.9433 - $1.9814
Actual: 1.0% increase to $1.9244
Forward yield: 4.57%
EPS growth guidance of 3% doesn’t lead to expectations for a large dividend boost, but I had expected Cardinal Health’s 35th annual dividend to be a bit higher.
Cracker Barrel Old Country Store (CBRL)
Prediction: 2.1 – 4.2% increase to $4.90 - $5.00
Actual: Deferred to June
The restaurant and specialty retail operator will probably announce its 17th consecutive annual boost when it announces earnings on June 4th. I’ll defer my prediction to the next report.
The Clorox Company (CLX)
Prediction: 1.6 – 3.6% increase to $3.90 - $3.98
Actual: 10.4% increase to $4.28
Forward yield: 2.85%
The company’s heavy debt load didn’t stop consumer goods manufacturer Clorox from rewarding investors with its 2nd straight year of double-digit growth.
Connecticut Water Service (CTWS)
Prediction: 3.2 – 4.8% increase to $1.29 - $1.31
Actual: 4.8% increase to $1.31
Forward yield: 1.88%
The nearly 5% increase marks a half-century of dividend growth for the New England-based utility. Connecticut Water is still planning to merge with utility SJW Group (also a long-term dividend grower).
Expeditors International (EXPD)
Prediction: 13.3 – 17.8% increase to $1.02 - $1.06
Actual: 11.1% increase to $1.00
Forward yield: 1.44%
Expeditors’ 23rd year of dividend growth was a good one, but missed my expectations by 2 cents.
FactSet Research Systems (FDS)
Prediction: 12.5 – 14.8% increase to $2.88 - $2.94
Actual: 12.5% increase to $2.88
Forward yield: 1.04%
The financial analytics company hit the bottom end of my prediction range in its 21st year of payout growth.
Flowers Foods (FLO)
Prediction: 5.6% increase to $0.76
Actual: 5.6% increase to $0.76
Forward yield: 3.40%
Baker Flowers Foods’ payout boost this year is about half the long-term growth average of 11%.
Leggett & Platt (LEG)
Prediction: 2.6 – 5.3% increase to $1.56 - $1.60
Actual: 5.3% increase to $1.60
Forward yield: 4.51%
The 47th year of dividend growth for the furniture manufacturer was at the high end of my expectations.
Lowe’s Companies (LOW)
Prediction: 14.6 – 18.8% increase to $2.20 - $2.28
Actual: 14.6% increase to $2.20
Forward yield: 2.36%
While a bit smaller than the 21% growth rate over the last 5 years, a 15% increase is nothing to sneeze at. This is the 35th year of dividend growth for Lowe’s.
MSA Safety Incorporated (MSA)
Prediction: 7.9 – 10.5% increase to $1.64 - $1.68
Actual: 10.5% increase to $1.68
Forward yield: 1.69%
Despite a 5-year growth average of 5%, this is the 2nd straight year of dividend growth of 10% for the manufacturer of safety products. This is MSA’s 48th consecutive year of payout growth.
Northrop Grumman (NOC)
Prediction: 8.3 – 10.0% increase to $5.20 - $5.28
Actual: 10.0% increase to $5.28
Forward yield: 1.74%
The defense contractor’s 16th straight year of dividend growth hit the high end of my prediction.
RLI Corporation (RLI)
Prediction: 4.5 – 6.8% increase to $0.92 - $0.94
Actual: 4.5% increase to $0.92
Forward yield: 1.07%
This is the 8th straight year of a 4-cent increase for RLI, but if you include the $1.00 special dividend the insurer paid out in November, the forward yield increases to 2.24%.
Tiffany & Company (TIF)
Prediction: 9.1 – 12.7% increase to $2.40 - $2.48
Actual: Deferred to June
Like Cracker Barrel above, Tiffany’s didn’t announce their annual payout boost in May. I expect them to do so in early June; I’ll defer my prediction until next month’s article.
Weyco Group (WEYS)
Prediction: 4.3 – 10.9% increase to $0.96 - $1.02
Actual: 4.3% increase to $0.96
Forward yield: 3.84%
This is the 11th straight year of 4-cent payout increases for the footwear company.
Eight Announcements of Dividend Increases Expected in June
Here are my predictions for the eight dividend increases I expect in June:
Casey’s General Stores (CASY)
Casey’s General Stores operates a chain of convenience stores and gas stations in smaller towns across the Midwestern United States. The company has more than 2,000 stores and has expanded rapidly over the last two decades, driving earnings growth and, in turn, dividend growth. Over the last decade, the company has averaged dividend growth of nearly 15%. The company is guiding same store sales growth to between 1.5% and 3%, expects to open another 60 stores and acquire 20 stores. All in all, this should drive EPS growth of around 5.5% and 7%. While not quite enough for a double-digit increase on its own, Casey’s sports a payout ratio of below 25%, so I expect the company’s 25th year of dividend growth to be on the same order as last year’s 12% increase.
Prediction: 12.1 – 15.5% increase to $1.30 - $1.34
Predicted Forward Yield: 1.01 – 1.04%
The shipping and logistics company has been outstanding for dividend growth investors. Seventeen years of dividend growth, with an average growth rate of nearly 30% over the last 5 years, has been a boon for investors. So far, FedEx has posted 12% EPS growth this fiscal year. It’s not enough to keep up the dividend growth rate but, for right now, it’ll be enough. The EPS growth, along with a payout ratio below 20%, might just be enough for another massive increase. Or not. But I’ll go out on a limb and look for an increase in line with the 10-year growth average of 20%.
Prediction: 19.2 – 24.6% increase to $3.10 - $3.24
Predicted Forward Yield: 2.01 – 2.10%
John Wiley & Sons (JW.A)
Publisher John Wiley & Sons has grown dividends for a quarter century. In general, the company has a decent dividend growth rate, averaging about 5 – 6% over the last five years, but last year was a bit of a bust with a minimal increase of 4 cents (3%) to $1.32. It’ll probably be another minimal increase this year, given that the company is guiding to near-zero EPS growth. The good news is that John Wiley’s payout ratio is below 40%, which means the company has room for its 26th year of dividend growth.
Prediction: 3.0% increase to $1.36
Predicted Forward Yield: 3.26%
Medtronic has been a dividend growth investor’s dream. Four decades of dividend growth, with an average growth rate of 11% over the last 10 years. Last year’s increase of 8.7% was a bit below the average, and it looks like 2019’s increase will be about the same. Medtronic has provided tight earnings guidance of between $5.14 – $5.16/share for fiscal 2019, which represents an increase of 8% over 2018’s EPS. The company currently sports a modest debt load and a decent payout ratio of less than 45%, so I’m looking for Medtronic’s 42nd year of dividend growth to be in line with EPS growth and maybe a bit higher.
Prediction: 7.5 – 10.0% increase to $2.15 - $2.20
Predicted Forward Yield: 2.32 – 2.38%
National Fuel Gas (NFG)
National Fuel Gas supplies natural gas across western New York State and northwestern Pennsylvania. National Fuel’s dividend growth has been slow and steady – the company sports both a 5 and 10-year average of below 3%. The company is on track for another year of modest growth: National Fuel is guiding full year operating EPS to between 3% and 9%. I think the company will play it safe in its 49th year of growth with a payout boost around 3 – 4%.
Prediction: 3.5 – 5.6% increase to $1.76 - $1.80
Predicted Forward Yield: 3.30 – 3.38%
The retailer hit the skids a bit in 2017 and only grew its dividend by 3% in mid-2018. It looks like Target turned things around last year, as the company reported a 15% increase in adjusted EPS. Better yet, Target is also guiding 2019’s full year adjusted EPS growth to a wide range between 7% and 12%. The company sports a relatively high debt load (100% of equity), but a modest payout ratio of less than 50% so I expect Target’s 48th year of dividend growth to be in the high single digits or low double digits.
Prediction: 7.8 – 11.7% increase to $2.76 - $2.86
Predicted Forward Yield: 3.43 – 3.56%
United Health Group (UNH)
United Health Group is a relatively new addition to the stable of dividend growth companies – 2019 will be the company’s 10th year of dividend growth. The company is a dividend powerhouse – from 2010, when United Health Group paid out 37.5 cents over three quarters, the company has compounded its payout by 32% annually. It’s a little lower over the last 5 years, but at 27% the near-term growth rate still isn’t too shabby. The health care company is guiding adjusted EPS growth to between 13 and 15% in 2019, but with a current payout ratio below 30%, I think there’s room for a second year of 20% dividend growth.
Prediction: 16.7 – 21.1% increase to $4.20 - $4.36
Predicted Forward Yield: 1.74 – 1.80%
United Technologies (UTX)
With brands like Carrier, Otis, and Pratt & Whitney, United Technologies has a variety of businesses serving the aerospace and building industries. This year marks a quarter-century of dividend growth for the S&P 500 component and dividend growth has been modest but steady for investors over that time. Over the last decade, the company has compounded dividends at nearly 8% annually, although over the last 5 years the growth rate is closer to 5%. It looks like this year will be another increase in the 5% range, as the company is projecting 2019 adjusted EPS growth between 2.5 and 5%. I’m expecting United Technologies’ 25th year of dividend growth to be right around last year’s 5% boost.
Prediction: 3.4 – 5.4% increase to $3.04 - $3.10
Predicted Forward Yield: 2.41 – 2.45%
Over the last several months, I’ve been hedging my bets when it comes to the size of dividend increases. It paid off this month, where 10 of my predictions were correct. I am also happy that we saw six double-digit increases. I certainly felt that five of those were justified by earnings and the sixth (Clorox) was a very pleasant surprise.
We’ll see if the large increases continue into June. In my opinion, earnings growth can justify at least three double-digit increases from Casey’s General Stores, FedEx, and United Health Group, with the possibility of two others from Medtronic and Target.
However, not all companies are experiencing earnings growth and, in those cases they’re either announcing minimal dividend growth (Cardinal Health) or deferring dividend increases (Bunge). Every industry deals with tough times so this is expected and not particularly surprising. I don’t think we have anything to worry about just yet, mostly because the practice isn’t widespread.
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Disclosure: I am/we are long EXPD. 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.