There weren’t a whole lot of surprises from the increases in October, although Lincoln Electric’s 4% increase was disappointing.
The superstar of the group was Cintas, with its 24% dividend increase leading the group.
I’ve tempered my expectations for November, but am still holding out the possibility of double-digit increases from food companies Hormel, Lancaster Colony and Sysco.
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 September, I provided predictions for 11 long-term dividend growth companies that have historically announced annual payout increases in October.
Before I get into my results from last month, I want to point out that insurer Mercury General (MCY) announced a 1-cent increase to its annual dividend. This is the 29th straight year of dividend growth from Mercury; the company now has a forward yield of 5.31%.
Also, I mentioned last month that clothing company V. F. Corporation (VFC) had spun off Kontoor Brands (KTB) in June, and that the dividends between the two companies had remained level for investors. It wasn’t clear if V. F. Corporation would maintain their pattern of announcing annual increases in October following the spinoff. As it turns out they did, raising its dividend by 11.6% from an annualized $1.72 to $1.92. This is the 47th year of dividend growth for VFC. The company now has a forward yield of 2.33%.
Before I provide my predictions for 14 companies that traditionally announce their annual increases in November, we’ll take a look at how well I did with my predictions from last month (you can see the original article here):
(All yields are based on stock prices at the market close on Wednesday, October 30th.)
Results for the 11 Dividend Increase Predictions from October
A. O. Smith Corporation (AOS)
Prediction: 4.5 – 8.1% increase to $0.92 - $0.95
Actual: 9.1% increase to $0.96
Forward yield: 1.91%
Although they beat my estimate, A. O. Smith’s 27th year of dividend raises was impacted by the trade war between the United States and China, where the company has experienced rapid growth.
Brown & Brown Inc. (BRO)
Prediction: 9.4 – 15.6% increase to $0.35 - $0.37
Actual: 6.3% increase to $0.34
Forward yield: 0.90%
Despite 22% income growth driven by multiple acquisitions, the insurer held back on its 26th year of dividend growth.
Cintas Corporation (CTAS)
Prediction: 19.5 – 24.4% increase to $2.45 - $2.55
Actual: 24.4% increase to $2.55
Forward yield: 0.92%
Cintas has boosted its dividend by more than 20% in 6 out of the last 7 years. This is the business services company’s 37th year of dividend growth.
Eaton Vance Corporation (EV)
Prediction: 11.4 – 15.7% increase to $1.56 - $1.62
Actual: 7.1% increase to $1.50
Forward yield: 3.26%
The asset manager’s 39th year of dividend growth was about half of last year’s boost and below the company’s 5-year growth average of 9%.
Lincoln Electric Holdings (LECO)
Prediction: 9.6 – 13.8% increase to $2.06 - $2.14
Actual: 4.3% increase to $1.96
Forward yield: 2.18%
Lincoln Electric saw EPS growth fall in the first half of 2019, which impacted the company’s 25th year of dividend growth.
Middlesex Water Company (MSEX)
Prediction: 6.3 – 10.4% increase to $1.02 - $1.06
Actual: 6.8% increase to $1.025
Forward yield: 1.55%
Investors in the New England-based utility benefitted from an approved rate increase, which led to 10% EPS growth in the first half of 2019. Middlesex has grown dividends for 47 years.
Northwest Natural Gas (NWN)
Prediction: 0.5 – 2.1% increase to $1.91 - $1.94
Actual: 0.5% increase to $1.91
Forward yield: 2.75%
This is the 6th straight year of 1-cent dividend increases for the Pacific Northwest-based natural gas utility.
Prosperity Bancshares (PB)
Prediction: 11.0– 13.4% increase to $1.82 - $1.86
Actual: 12.2% increase to $1.84
Forward yield: 2.57%
The bank holding company’s 20th year of dividend growth was right in line with the 10-year average of 11%.
RPM International (RPM)
Prediction: 5.7 – 10.0% increase to $1.48 - $1.54
Actual: 2.8% increase to $1.44
Forward yield: 1.97%
The specialty chemical company’s 45th year of dividend growth was its smallest since 2011.
Stepan Company (SCL)
Prediction: 5.0 – 8.0% increase to $1.05 - $1.08
Actual: 10.0% increase to $1.10
Forward yield: 1.11%
The specialty chemical company beat my estimates in its 52nd year of dividend growth. The 10% boost comes after last year’s 11% increase.
UMB Financial Corporation (UMBF)
Prediction: 5.0 – 8.3% increase to $1.26 - $1.30
Actual: 3.3% increase to $1.24
Forward yield: 1.84%
The Kansas City, MO – based financial holding company hedged on its 26th year of dividend growth, despite 7% EPS growth.
Predictions for 14 Announcements of Dividend Increases in November
Here are my predictions for the 14 dividend increases I expect in November:
Automatic Data Processing (ADP)
Dividend growth investors have lots of reasons to be happy with the payroll processing and business services firm. The company boosted its payout twice last year, starting 2018 with an annualized $2.52 payout and ending the year with a $3.16 dividend – a 25% increase over the year. Longer term, ADP sports a 9% dividend growth average over the last 5 years. The company is guiding 2020 EPS growth to 12 – 14%, giving ADP room for its 45th year of dividend growth. Despite the double-digit EPS growth, I expect the company to announce an increase in the high single digits.
Prediction: 7.6 – 9.5% increase to $3.40 - $3.46
Predicted Forward Yield: 2.07 – 2.11%
Insurance company Assurant offers warranties and extended service contracts on a variety of products, like automobiles, along with renter’s and homeowner’s insurance. This is a new company that I’m covering, and this year will be Assurant’s 15th year of dividend growth. The company has a very nice dividend growth record over that time, and over the last decade has compounded its payout by more than 15% annually. Last year’s 7% increase was below that long-term growth rate, and I think we’ll see something similar this year. Assurant is seeing 10% EPS growth over the first half of the year, and is guiding full year EPS growth to between 6 and 10%. Watch for another 7% increase, or maybe something a little larger, right before Veteran’s Day.
Prediction: 6.7 – 9.2% increase to $2.56 - $2.62
Predicted Forward Yield: 2.03 – 2.09%
Atmos Energy Corporation (ATO)
The Dallas-based natural gas utility has seen a pick-up in EPS growth over the last few years, and has passed that along to investors. Over the last 10 years, Atmos has compounded its payout at about 4%, but over the last 5 years that growth rate is nearly 7%. The company has provided full year EPS guidance range of between $4.25 and $4.35, representing a growth rate of 6.2% and 8.8%. Atmos’ payout ratio sits right around 50%, meaning that there’s room for a decent sized boost, but I’ve seen a variety of companies hedging on their dividend increases recently, so I expect Atmos to come in slightly below last year’s 8% boost in its 32nd year of dividend growth.
Prediction: 5.7 – 7.6% increase to $2.22 - $2.26
Predicted Forward Yield: 1.98 – 2.01%
Becton, Dickinson and Company (BDX)
Medical technology company Becton, Dickinson has grown dividends for 47 years, compounding them at nearly 10% over the last decade. Last year’s 3% increase was a disappointment and we may be disappointed again in mid-November. Although BD is guiding EPS growth to between 6% and 12% on a currency-neutral basis, currency effects are crushing earnings growth. Over the first 9 months of the year, currency-neutral EPS growth is over 11%; accounting for currency effects, the EPS growth is less than 4%. I think this will keep a lid on BD’s 48th year of dividend growth.
Prediction: 2.6 – 3.9% increase to $3.16 - $3.20
Predicted Forward Yield: 1.23 – 1.25%
Brown-Forman Corporation (BF.B)
Brown-Forman, manufacturer of well-known alcoholic beverages like Jack Daniels Whiskey, is seeing slowing EPS growth. While still guiding to positive growth, the expected growth of between 1 and 7% is below the company’s 5-year dividend growth average of 9%. The good news is that Brown-Forman is coming off of 17% EPS growth in fiscal 2019; the company also sports a payout yield below 50%, giving it room for a decent dividend boost. Given this, I’m expecting the company’s 35th year of dividend growth to be at the high end of the EPS growth guidance, but still below the 5-year average.
Prediction: 5.1 – 6.3% increase to $0.83 - $0.84
Predicted Forward Yield: 1.28 – 1.29%
Black Hills Corporation (BKH)
Like many utilities, Black Hills has a modest dividend growth rate, having compounded its payout by about 5% over the last 5 years. The company is guiding full year EPS to between $3.50 and $3.80, representing EPS growth of between zero and 7%. With such a wide range on earnings, it’s somewhat difficult to nail down a prediction for the company’s 48th year of dividend growth. But given the company’s decent debt-to-equity load of 130% and its historical dividend growth rate, I think that the last two years of 6 – 8% dividend boosts were outliers; I expect to see a payout boost right in line with the historical average.
Prediction: 2.9 – 5.0% increase to $2.08 - $2.12
Predicted Forward Yield: 2.64 – 2.69%
Industrial equipment manufacturer Emerson has grown dividends year-over-year since the Eisenhower administration. Unfortunately, the recent dividend growth hasn’t been anything to write home about – over each of the last 4 years, Emerson has increased its dividend by 2 cents, resulting in an average growth rate of 3% over the last 5 years. The company is guiding to EPS growth in fiscal year 20 of between 4 and 7%, but Emerson’s recent performance has attracted the attention of activist investor D. E. Shaw & Co. While it’s possible that Emerson may want to prove something to D. E. Shaw and entice investors with a large boost, Given modest EPS growth, I expect to see a 5th year of 2-cent growth with a small chance of something a little larger.
Prediction: 1.0 – 2.0% increase to $1.98 - $2.00
Predicted Forward Yield: 2.79 – 2.82%
Hormel Foods (HRL)
Diversified food company Hormel hit the half century mark of dividend increases a few years ago and it’s still going strong. The company has averaged 16% dividend growth over the last 5 years and last year’s 12% increase was the 10th straight double-digit boost. The company is looking at a drop in EPS this year – potentially up to 8%. Even if Hormel hits the low end of its FY19 guidance, the company payout ratio will still be below 50%, making a 54th year of dividend growth a near certainty. But will Hormel post an 11th straight year of 10%+ dividend growth? Possibly, but I think it’s unlikely. I’m expecting a payout boost in the mid-single digits, with a small chance of 10% growth.
Prediction: 4.8 – 10.7% increase to $0.88 - $0.93
Predicted Forward Yield: 2.15 – 2.27%
Lancaster Colony Corporation (LANC)
Lancaster Colony provides food products to individuals and businesses under a variety of brand names like Marzetti, Sister Schubert’s, and New York Bakery. The company is one of the few dividend growth companies that has no debt on its books. Beyond that, the company is continuing to grow, and posted EPS growth of 11% in the recently concluded fiscal year. Although the company didn’t give EPS guidance for the new fiscal year, CEO David Ciesinksi did state that he expected an increase in commodity costs but anticipate offsetting those increased costs with reductions elsewhere. Given the company’s excellent dividend growth record, with a decade-long average growth rate of 8%, I expect that Lancaster Colony’s 57th year of dividend growth will be good for investors.
Prediction: 7.7 – 12.3% increase to $2.80 - $2.92
Predicted Forward Yield: 2.03 – 2.11%
Mathews International Corporation (MATW)
Mathews International has several lines of business; the two most prominent are its SGK Brand Solutions segment, which develops branding solutions, and its Memorialization segment, which provides caskets, memorials, and cremation products. The company also has a smaller Industrial Technologies segment, which designs, manufactures and distributes marking, coding and industrial automation technologies. After a gang-buster 10% EPS growth in fiscal 2018, Mathews is facing significant headwinds in fiscal 2019. The company has lost some brand segment clients and is seeing a drop in earnings in its Memorialization segment. Overall, EPS over the first 9 months in fiscal 2019 are down 15%. Despite the drop in earnings, Mathews’ payout yield is a very modest 20%, leaving plenty of room for the company’s 25th straight year of dividend growth. I’m looking at a dividend announcement next month on the order of last year’s 5% increase, despite a 10-year growth average of 12%.
Prediction: 3.8 – 7.5% increase to $0.83 - $0.86
Predicted Forward Yield: 2.21 – 2.29%
MDU Resources Group (MDU)
North Dakota-based MDU Resources, provider of construction materials and energy, has grown dividends for 28 years and is poised to deliver on its 29th year of dividend growth. Having posted 20% EPS growth in the first half of the year, the company is guiding full year EPS growth to between 2 and 12%. Unfortunately, the company isn’t known for big dividend growth. Over each of the last 9 years, MDU has grown its annual dividend by only 2 cents, resulting in a 10-year average growth rate of 3%. The company also sports a debt-to-equity ratio close to 100%. Despite the decent earnings growth, I think the company will hedge a bit and announce another 2-cent increase in November.
Prediction: 2.5% increase to $0.83
Predicted Forward Yield: 2.86%
McCormick & Company (MKC)
Spices and flavor company McCormick has been a good, steady dividend grower for investors. Over the last 10 years, the company has compounded its dividend at 9%. For 2019, McCormick is guiding EPS growth to between 6 and 8%, and the company in its most recent quarterly financial press release announced that it planned on using its cash flow to pay dividends and to pay down debt. With expected EPS between $5.30 and $5.35, and a current dividend of $2.28, the company’s payout ratio around 45% gives the company plenty of room for its 29th year of dividend growth. I expect the company to announce another dividend increase in line with its historical growth rate in November.
Prediction: 7.0 – 9.6% increase to $2.44 - $2.50
Predicted Forward Yield: 1.50 – 1.53%
South Jersey Industries (SJI)
2019 will be the 20th year of dividend growth for the natural gas utility. Last year’s 3% boost was below the company’s 7% average over the last decade, and we should see another sub-par increase this year as well. South Jersey Industries is guiding fiscal 2019’s EPS to between $1.05 and $1.15, putting the payout yield between 100% and 110%. Given the lack of EPS growth, I’m expecting a minimal dividend boost from South Jersey Industries.
Prediction: 0.9 – 2.6% increase to $1.16 - $1.18
Predicted Forward Yield: 3.63 – 3.69%
Sysco Corporation (SYY)
Food distribution company Sysco saw nice EPS growth in fiscal 2019, which ended June 30th. Adjusted EPS were up 11% to $3.55, boosted by nice sales and earnings growth in its International Foodservice Operations business segment. With this EPS growth, the company now sports a payout ratio below 50%, meaning that Sysco can boost its dividend for the 44th straight year by well more than the decade long average of 6%. I’m looking for Sysco to announce a dividend increase around 10%.
Prediction: 9.0 – 12.8% increase to $1.68 - $1.76
Predicted Forward Yield: 2.11 – 2.21%
For the 2nd month in a row I was roughly 50-50 on my predictions, overestimating 5 of the 11 companies’ increases. Although Eaton Vance was the big miss – boosting its dividend by only 7% rather than the 11 – 16% I expected – Cintas and Prosperity Bank came through with double digit increases. In particular, Cintas announced its 6th year of 20%+ dividend growth since 2013. Stepan Company also rewarded investors with double-digit dividend growth.
Next month brings a whole host of payout boosts, most of which I expect to be in the mid-single digits. I do see the possibility of up to 3 companies announcing double-digit boosts: Hormel, Lancaster Colony and Sysco.
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Disclosure: I am/we are long AOS, HRL, LECO. 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.