Those of you who follow this series of articles know that I track the dividend increases for a variety of long-term dividend growth companies. Back at in the end of July, I provided predictions for 12 dividend growth companies that have historically announced annual payout increases in August.
One popular company that announced an increase but that I didn’t give a prediction for was Altria (MO). The tobacco company announced a 5% increase in its annual dividend to $3.36, making 2019 the company’s 10th straight year of dividend growth. The company sports a forward yield of 7.68%.
Before I provide my predictions for six companies that traditionally announce their annual increases in September, we’ll take a look at how well I did with my predictions from last month (you can see that article here):
(All yields are based on stock prices at the market close on Friday, August 30th.)
Results for the 12 Dividend Increase Predictions from August
Badger Meter (BMI)
Prediction: 10.0–16.7% increase to $0.66-0.70
Actual: 13.3% increase to $0.68
Forward yield: 1.32%
The manufacturer of flow control systems rewarded investors with another year of double-digit dividend growth. This is Badger Meter’s 28th year of increasing dividends.
Community Bank System (CBU)
Prediction: 3.9–5.3% increase to $1.58-1.60
Actual: 7.9% increase to $1.64
Forward yield: 2.69%
The New York State based bank holding company pulled back on its dividend increase from last year, but still beat its historical average in its 28th year of payout growth.
Carlisle Companies (CSL)
Prediction: 7.5–10.0% increase to $1.72-1.76
Actual: 25.0% increase to $2.00
Forward yield: 1.38%
Carlisle’s 43rd year of dividend growth blew away my expectations and was two-and-a-half times the 10% average over the last decade.
Dover Corporation (DOV)
Prediction: 6.3–8.3% increase to $2.04-2.08
Actual: 2.1% increase to $1.96
Forward yield: 2.09%
Despite EPS growth in the mid-teens, long-time dividend growth stock Dover pulled back on increase in its 64th straight year of dividend increases.
Federal Realty Investment Trust (FRT)
Prediction: 6.9-8.3% increase to $4.36-4.42
Actual: 2.9% increase to $4.20
Forward yield: 3.25%
The retail REIT’s 52nd year of dividend growth was right in the middle of its EPS growth guidance for this year.
International Flavors & Fragrances (IFF)
Prediction: 9.6–11.0% increase to $3.20-3.24
Actual: 2.7% increase to $3.00
Forward yield: 2.73%
International Flavors & Fragrances extended its dividend growth streak to 17 years, but with a boost far below its decade-long average of 11%.
Illinois Tool Works (ITW)
Prediction: 10.0-13.0% increase to $4.40-4.52
Actual: 7.0% increase to $4.28
Forward yield: 2.86%
The diversified manufacturer has accelerated its dividend growth rate over the last 5 years, but that came to an end in its 44th year of dividend growth.
MGE Energy (MGEE)
Prediction: 3.7–5.2% increase to $1.40-1.42
Actual: 4.4% increase to $1.41
Forward yield: 1.86%
The Wisconsin-based utility’s 43rd year of dividend growth was nearly identical to last year’s 4.6% boost.
Prediction: 6.5-8.7% increase to $1.96-2.00
Actual: 4.3% increase to $1.92
Forward yield: 3.52%
The integrated circuit manufacturer announced its 18th year of dividend growth in late July but after I published my August predictions article. After two big increases in 2018, resulting in a total year-over-year increase of 27%, Maxim returned to its traditional growth rate in the middle single digits.
Nordson Corporation (NDSN)
Prediction: 4.3–8.6% increase to $1.46-1.52
Actual: 8.6% increase to $1.52
Forward yield: 1.12%
I expected Nordson, facing a drop in adjusted EPS, to pull back on its dividend growth rate, which has been more than 13% over the last decade. That’s exactly what the company did in its 56th year of dividend increases.
The Scotts Miracle-Gro Company (SMG)
Prediction: 4.5–6.4% increase to $2.30-2.34
Actual: 5.5% increase to $2.32
Forward yield: 2.18%
The lawn and garden care company is focused on reducing its debt, but still had enough cash flow for its 11th year of dividend growth.
Aqua America (WTR)
Prediction: 5.0–7.0% increase to $0.9198-0.9373
Actual: 7.0% increase to $0.9343
Forward yield: 2.11%
The water utility continued its tradition of consistent dividend growth. The 7% boost this year (the company’s 28th year of dividend increases) is nearly identical to the 10-year growth average of 7.6%.
Predictions for September’s 6 Announcements of Dividend Increases
Here are my predictions for the 6 dividend increases I expect in September:
Brady Corporation (BRC)
A leading company in the very un-sexy area of identification and labelling products, Brady Corporation has grown dividends for 33 years. So far this year, the company has increased its full year EPS guidance each quarter, which currently stands at between $2.35 and $2.40, representing year-over-year growth of 36–39%. When it comes to dividend growth, Brady has traditionally opted for modest increases of between 1 and 2 cents a year, translating into a 10-year growth average of 3%. So, despite the blowout EPS growth and zero debt, I’m expecting another year of a modest increase, with a small chance for a slightly larger boost.
Prediction: 2.4–4.7% increase to $0.87-0.89
Predicted Forward Yield: 1.84-1.89%
Lockheed Martin (LMT)
The aerospace and defense contractor has rewarded income investors handsomely, with almost two decades of at or above 10% annual boosts, resulting in a decade-long dividend growth average of more than 16%. It looks like Lockheed will post another year of double digit growth; the company is guiding EPS growth to around 20%. Despite a decent debt load (more than 400% debt-to-equity), the company has the cash flow to cover its debt payments and boost its dividend once more. This will be Lockheed’s 17th year of dividend growth, and another rewarding one for investors.
Prediction: 10.0–13.6% increase to $9.68-10.00
Predicted Forward Yield: 2.52-2.60%
After a period of slow growth in the middle of the decade, the worldwide fast food company appears to be back on track. Powered by 17% EPS growth, the company boosted its payout by 15% last year. This year should be just as rewarding for investors. 2018 fiscal year EPS grew by 18% over 2017, and this year’s first half EPS are up another 2% (6% excluding currency effects). This EPS growth should power a good dividend boost, in line with or even in excess of the company’s 10-year growth average of 10%. The only uncertainty is whether McDonald’s will hedge its dividend increase due to this year’s single digit EPS. I’ll hedge a bit as well and look for the company’s 43rd year of dividend growth to be in the low double digits.
Prediction: 10.3-12.9% increase to $5.12-5.24
Predicted Forward Yield: 2.34-2.40%
Powered by growth in its cloud services segment, Microsoft saw another good year of income growth, with adjusted EPS up 22% year-over-year. The company sports a modest debt level of 77% debt-to-equity and a current payout ratio of less than 40%. All this adds up to another good year for Microsoft investors. Although we’ve seen annual dividend boosts of less than 10% over the last three years, I think that this is the year we’ll see a return to a double-digit increase from Microsoft. I’m expecting something in line with the company’s 10-year growth average of 14% for Microsoft’s 17th year of dividend growth.
Prediction: 14.1-17.4% increase to $2.10-2.16
Predicted Forward Yield: 1.52-1.57%
New Jersey Resources (NJR)
Natural gas utility New Jersey Resources will hit the quarter century mark of dividend growth this year. The company got an earnings boost last year from the tax cut. Factoring in that 66 cent boost in last year’s EPS and comparing it to this year’s EPS guidance results in an expected EPS drop of 4%. Despite the earnings contraction, New Jersey Resources’ payout ratio of less than 55% and modest debt load gives the company room for another dividend increase. However, I expect the upper bound on this year’s boost to be the company’s 10-year growth rate of 7%.
Prediction: 4.3-6.8% increase to $1.22-1.25
Predicted Forward Yield: 2.67-2.73%
Despite nearly a quarter-century of dividend growth, telecommunications company Verizon hasn’t rewarded investors with large increases. Last year’s 2% increase didn’t even meet the decade-long growth average of 3%. Although the company saw 26% adjusted EPS growth in fiscal 2018 to $4.71, Verizon’s guidance for EPS growth in 2019 is in the low single digits. Verizon is also burdened by a debt-to-equity ratio of 200%. Given all this, I expect the company’s to announce a small payout boost for its 25th year of dividend growth.
Prediction: 2.1-3.7% increase to $2.46-2.50
Predicted Forward Yield: 4.23-4.30%
Over the last several months, my predictions have been too optimistic. I adjusted things a little bit in last month’s article and it paid off a little. Of my 12 predictions from last month, I overestimated 5 of them, underestimated 2, and got 5 of them correct.
Perhaps the biggest surprise was the massive 25% increase from Carlisle. The company had established a recent pattern of double-digit increases, but this year’s increase was the largest by far. Long term, however, dividend boosts like this is not supported by current earnings growth.
Another surprise – this time to the downside – was International Flavor & Fragrances’ minimal dividend increase despite 12% EPS growth in the first quarter. The company is clearly putting its free cash flow towards the acquisition of Israeli company Frutarom.
I’m expecting only a few announcements in September, but we should see some nice increases from defense contractor Lockheed Martin, tech company Microsoft, and restaurant company McDonald’s.
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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: Disclosure: I hold no positions in the stocks mentioned in this article. However, I may take a position in any of the stocks mentioned in this article in the near future.