Most of the dividend boosts in November were in the mid-single digit percentages, with modest increases from a variety of companies including utilities MDU and South Jersey Industries.
The highlights from last month were a 15% increase from ADP and a 17% increase from Sysco. Emerson announced its 63rd year of dividend growth.
I continue to temper my expectations, but am still expecting double-digit increases from four companies in December, including Ecolab and Stryker.
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 October, I provided predictions for 14 long-term dividend growth companies that have historically announced annual payout increases in November.
Before I get into my results from last month, I want to point out two other companies that announced annual dividend hikes in November: pharmaceutical company AbbVie (ABBV) boosted its dividend by 10.3% to an annualized $4.72, and diversified manufacturer Roper Technologies (ROP) boosted its dividend by 10.8% to $2.05 a year. AbbVie has grown dividends every year since being spun off from Abbott in 2013 and now yields 5.34%. Roper’s announcement extends its dividend growth streak to 27 years and gives it a forward yield of 0.57%.
Before I provide my predictions for 15 companies that traditionally announce their annual increases in December, 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, November 27th.)
Results for the 14 Dividend Increase Predictions from November
Automatic Data Processing (ADP)
Prediction: 7.6–9.5% increase to $3.40-3.46
Actual: 15.2% increase to $3.64
Forward yield: 2.12%
ADP’s business of payroll and other business services is booming and the company’s 45th year of dividend growth reflects this, with a boost well above the long-term average of 9%.
Prediction: 6.7–9.2% increase to $2.56-2.62
Actual: 5.0% increase to $2.52
Forward yield: 1.89%
This is the 15th year of dividend growth for the provider of warranties and extended service contracts; this year’s increase was a third of Assurant’s 10-year growth average of 15%.
Atmos Energy Corporation (ATO)
Prediction: 5.7–7.6% increase to $2.22-2.26
Actual: 9.5% increase to $2.30
Forward yield: 2.15%
I hedged my estimate in my prediction; however, the natural gas utility continued its recent pattern of above-average dividend growth in its 32nd year of payout boosts.
Becton, Dickinson and Company (BDX)
Prediction: 2.6–3.9% increase to $3.16-3.20
Actual: 2.6% increase to $3.16
Forward yield: 1.21%
Currency effects weighed on EPS growth for the medical technology company and kept its 48th year of dividend growth down below 3%.
Brown-Forman Corporation (NYSE:BF.B)
Prediction: 5.1–6.3% increase to $0.6979-0.7058
Actual: 5.0% increase to $0.6972
Forward yield: 1.01%
I slightly overestimated this year’s dividend boost from distiller Brown-Forman. This is the company’s 35th year of dividend growth.
Black Hills Corporation (BKH)
Prediction: 2.9–5.0% increase to $2.08-2.12
Actual: 5.9% increase to $2.14
Forward yield: 2.78%
I expected the utility’s last two increases of between 6% and 8% were outliers, but Black Hills is rewarding investors with a third straight year of above-average growth.
Prediction: 1.0–2.0% increase to $1.98-2.00
Actual: 2.0% increase to $2.00
Forward yield: 2.69%
With this announcement, Emerson broke its 4-year streak of 2-cent increases – but not by much. This is Emerson’s 63rd year of dividend growth.
Hormel Foods (HRL)
Prediction: 4.8–10.7% increase to $0.88-0.93
Actual: 10.7% increase to $0.93
Forward yield: 2.07%
I had expected a small chance of a double-digit boost from Hormel; the company keeps its streak alive with its 11th year of 10%+ dividend growth, and 54 years of overall dividend increases.
Lancaster Colony Corporation (LANC)
Prediction: 7.7–12.3% increase to $2.80-2.92
Actual: 7.7% increase to $2.80
Forward yield: 1.75%
The food company’s 57th year of dividend growth was right in line with its long-term dividend growth rate of 8%.
Matthews International Corporation (MATW)
Prediction: 3.8–7.5% increase to $0.83-0.86
Actual: 5.0% increase to $0.84
Forward yield: 2.18%
Despite a double-digit drop in EPS this year, the memorialization and branding company joins the elite group of companies that have grown dividends for a quarter century.
MDU Resources Group (MDU)
Prediction: 2.5% increase to $0.83
Actual: 2.5% increase to $0.83
Forward yield: 2.85%
This is the 10th straight year of 2-cent annual dividend increases for MDU Resources, and the 28th year of dividend growth overall.
McCormick & Company (MKC)
Prediction: 7.0–9.6% increase to $2.44-2.50
Actual: 8.8% increase to $2.48
Forward yield: 1.46%
Spice company McCormick hit the midpoint of my expectations in its 29th year of dividend growth.
South Jersey Industries (SJI)
Prediction: 0.9–2.6% increase to $1.16-1.18
Actual: 2.6% increase to $1.18
Forward yield: 3.77%
With a payout yield above 100%, the natural gas utility couldn’t offer a much bigger boost to investors. This is South Jersey’s 20th year of dividend growth.
Sysco Corporation (SYY)
Prediction: 9.0–12.8% increase to $1.68-1.76
Actual: 16.9% increase to $1.80
Forward yield: 2.22%
Powered by 11% EPS growth in fiscal 2019, the food wholesaler was able to announce a dividend boost nearly three times its 10-year average growth rate. This is Sysco’s 44th year of payout increases.
Predictions for December’s 15 Dividend Increase Announcements
Here are my predictions for the 15 dividend increases I expect in December:
ABM Industries (ABM)
ABM provides services, including janitorial, maintenance, and parking services to facility and building managers. The company saw modest adjusted EPS growth in the first 3 quarters of fiscal 2019; powered by growth in its Technical Solutions and Aviation segments, adjusted EPS was up 6% to $1.38. ABM expects full-year adjusted EPS growth for the full year to be similar and is guiding full-year EPS to a midpoint of $2.00.
Generally speaking, the company’s dividend growth record has been extremely small. With 12 straight years of 2-cent annual boosts, ABM has 5- and 10-year compounded growth rates around 3%. But with payout increases for the last 53 years, the company has established a commitment to dividend growth to reward investors. With modest EPS growth this year, I expect another 2 cent annual dividend increase.
Prediction: 2.8% increase to $0.74
Predicted Forward Yield: 1.91%
Abbott Laboratories (ABT)
Abbott saw growth across all its business segments – Nutrition, Diagnostics, Established Pharmaceuticals, and Medical Devices – over the first 9 months of the year, allowing the company to narrow EPS guidance to the high end of the previously established range. At the mid-point, the EPS guidance of between $3.23 and $3.25 represents growth of 12.5% from 2018. Abbott has a good long-term record of dividend growth and, since spinning off pharmaceutical company AbbVie in 2013, has compounded dividends by nearly 8% annually. Last year’s increase of 14% was more than twice that average, and I think with the expected EPS growth this year, Abbott’s 47th year of dividend increases will be in the double-digits and around the same amount as last year’s boost.
Prediction: 10.9–15.6% increase to $1.42-$1.48
Predicted Forward Yield: 1.66–1.73%
Franklin Resources (BEN)
The investment manager’s assets under management came under pressure in 2019 due to net withdrawals and market volatility and, as a result, so did earnings. Adjusting for a special income tax charge last year, the company’s EPS was down 26% to $2.35. Despite this, Franklin Resources’ payout ratio is a modest 45%. Franklin Resources has a 36-year record of dividend growth and has compounded the payout at more than 13% over the last decade. Given this, I expect the company to shake off the EPS decline and for its 37th year of dividend growth to be right around last year’s 13% boost.
Prediction: 9.6–13.4% increase to $1.14-1.18
Predicted Forward Yield: 4.09–4.23%
C. H. Robinson Worldwide (CHRW)
Logistics company C. H. Robinson is seeing near-zero growth in income in the first 3 quarters of the year, along with a revenue decline of 9% year over year. On the bright side, the company currently sports a payout ratio below 45%, and has compounded dividends at around 8% over the last decade. Whether the decline in EPS represents weakness in the overall economy or problems in the company’s operations, it’s worrisome either way, which is why I expect to see a lower-than-average dividend increase in C. H. Robinson’s 22nd year of dividend growth.
Prediction: 5.0–7.0% increase to $2.10-2.14
Predicted Forward Yield: 2.70–2.75%
Dominion Energy (D)
The Richmond, Virginia-based electric utility should announce its 15th year of dividend growth in mid-December. The company has compounded its payout at nearly 8% annually over the last decade and last year rewarded investors with a 10% boost. Dominion is unlikely to repeat that feat this year – the company is guiding EPS growth this year between 2.5% and 6%. With a payout yield already at 90% (based on the 2018 EPS of $4.05), there’s not much headroom for a big increase. I’m expecting Dominion to announce an increase of about half the long-term growth rate.
Prediction: 3.5–4.6% increase to $3.80-3.84
Predicted Forward Yield: 4.57–4.62%
Water, hygiene and energy technology company Ecolab has been a boon for dividend growth investors, compounding its distributions by more than 12% annually over the last decade. It looks like 2019 will be another good year for Ecolab investors – the company is guiding full-year EPS growth to between 10% and 12%. The company does sport a larger-than-normal debt/equity ratio of 70%, but this debt level is normal for Ecolab. In addition, the company is in the process of spinning off its Upstream Energy business into a separate company. The new company will take on debt, and use portions of the proceeds to pay a dividend to Ecolab. This additional income stream should mitigate the effects of Ecolab’s current debt level. Given all the positive factors, I expect Ecolab’s dividend increase to be similar to last year’s 12% boost.
Prediction: 10.9–13.0% increase to $2.04-2.08
Predicted Forward Yield: 1.09–1.11%
Graco Inc. (GGG)
The fluids and coatings company recently celebrated the 50th anniversary of its initial public offering. For almost half of that time, the company has grown its payout. With a decade-long average growth rate of 10% and last year’s 3-for-1 split, income investors have benefitted from Graco’s earnings growth. However, the company recently reduced its full-year revenues outlook, citing a “sharp decline in [the] Asia Pacific [region].” Over the first 9 months of the year, EPS was down 2%. The one silver lining is the company’s low payout ratio of 30%. Given the flat EPS expectations and uncertainty in the Asia/Pacific region, I expect Graco to pull back a bit in its 20th year of dividend growth.
Prediction: 6.3–9.4% increase to $0.68-0.70
Predicted Forward Yield: 1.38–1.42%
J&J Snack Foods (JJSF)
J&J Snack Foods, manufacturer of snack food brands Superpretzel, Luigi’s, ICEE and Tio Pepe’s, should announce its 15th year of dividend growth in early December. With an average growth rate of more than 17% over the last decade, investors have seen their collected dividends nearly quintuple over that time and are currently receiving $2.00 a share. The company just announced its fiscal 2019 earnings and, once again, grew adjusted EPS by double-digits to $5.00, giving the company a very reasonable 40% payout yield. With no debt to suck up free cash flow, J&J Snacks is poised for another year of double-digit dividend growth.
Prediction: 10.0–14.0% increase to $2.20-2.28
Predicted Forward Yield: 1.18–1.22%
Steel manufacturer Nucor reported record earnings last year, but saw pressure on revenues and margins in the first three quarters of the year. EPS over that period was down 30% to $3.78. Earnings in Nucor’s steel mills division were particularly hit, with a drop in segment income of 40%. With a payout yield below 40%, the company has room for its 45th year of dividend growth, but I expect a minimal dividend increase this year.
Prediction: 0.6–1.3% increase to $1.61–1.62
Predicted Forward Yield: 2.85–2.87%
Pentair plc (PNR)
The company is completing its first full year as a pure-play water company, after spinning off its electrical business segment in the form of nVent Electric plc (NVT). The legacy Pentair has grown its dividend for 43 years, compounding the payout by 7% over the last decade. The company is looking at flat earnings growth in 2019 and has gradually reduced its EPS guidance over the course of the year. Although the company offloaded a lot of its debt to nVent, I think we’ll see the company announce an annual increase on the order of last year’s 3% boost.
Prediction: 2.8–5.6% increase to $0.74-0.76
Predicted Forward Yield: 1.67–1.71%
SEI Investments Company (SEIC)
Asset manager SEI Investments is one of a few companies that pays dividends semi-annually, rather than quarterly. The company traditionally announces its annual dividend increase in the second payment of the year. So what will the company’s 29th year of dividend growth bring? SEI boasts an enviable decade-long growth rate of 15% and, based on last year’s annual earnings of $3.14, sports a payout yield around 20%. However, this year’s revenue and EPS growth over the first 9 months of the year is negligible. Given the low payout yield, I think SEI will reward investors with a boost similar to last year’s 10% increase.
Prediction: 9.1–12.1% increase to $0.72-0.74
Predicted Forward Yield: 1.11–1.14%
Stryker Corporation (SYK)
Medical equipment manufacturer Stryker has built an outstanding dividend growth record, compounding its payout by 17% over the last decade. The company routinely increases its dividend by double-digits; last year’s 10.6% boost was the smallest for Stryker in the past 10 years. The company will announce its 27th year of dividend growth in early December and it looks like it will be another good year for investors. The company is guiding EPS growth for 2019 to between 12% and 13%, powered by 8% sales growth, and currently sports a payout ratio of less than 30%. With a modest debt load, Stryker is well poised for another 10%+ payout increase.
Prediction: 10.6–13.5% increase to $2.30-2.36
Predicted Forward Yield: 1.12–1.15%
Telecommunications company AT&T is focusing on paying down debt and recently announced that it would target its dividend payout ratio to be in the low-50% range. There are several reasons to expect a minimal boost for the company’s 36th year of dividend growth. AT&T is looking to retire all the debt from the Time Warner by 2022 and is projecting a 1–2% revenue and earnings growth rate for 2019. Also, the company’s payout ratio is currently below 60%, slightly higher than AT&T’s target payout yield. All this adds up to the company’s 12th straight year of a 4-cent annual boost.
Prediction: 2.0% increase to $2.08
Predicted Forward Yield: 5.52%
Urstadt Biddle Properties (UBA)
Retail REIT Urstadt Biddle has grown dividends for the last quarter century. But the dividend boosts haven’t been terribly rewarding for investors; over each of the last 11 years, the annual increases have been no more than 2 cents, resulting in a 10-year average growth rate of less than 1.5%. Investors won’t see a change in the pattern, as Urstadt Biddle’s funds from operations fell over the first 3 quarters this year, dropping 5% to 96 cents a share. The drop in funds from operations means that it will be the 5th straight year of 2-cent annual dividend growth for Urstadt Biddle.
Prediction: 1.8% increase to $1.12
Predicted Forward Yield: 4.56%
Waste Management (WM)
Garbage pays – at least for Waste Management, which has grown its annual dividend for 16 years. Despite a drop in revenues from its recycling business line, the company is guiding to EPS growth of between 2% and 4%, powered by revenue growth in its collection and disposal business line. Although the company boosted its dividend by 10% last year, the low single-digit EPS growth means that we can expect to see this year’s dividend increase closer to the 10-year average of 6%.
Prediction: 5.9–7.3% increase to $2.17-2.20
Predicted Forward Yield: 1.92–1.95%
Overall, the November dividend announcements were as I expected. Even the two companies that didn’t increase as much as I expected missed my predictions by relatively little. The good news for investors was the double-digit increases from ADP and Sysco.
Among the 15 companies expected to announce annual increases in December, I’m expecting at least 4 of them – Abbott, Ecolab, J&J Snack Foods, and Stryker – to reward investors with double-digit boosts.
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Disclosure: I am/we are long HRL. 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.