Defense Companies General Dynamics And Raytheon Expected To Announce Dividend Increases In March

Summary

• Four companies, including Analog Devices, TJX Companies, and Sherwin-Williams, announced 10%+ increases in the latter half of February.
• March will be a quiet month for dividend growth stocks with only a few companies announcing annual increases.
• Among them will be two aerospace and defense companies, along with home goods company Williams-Sonoma.

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 middle of February, I provided predictions for 14 long-term dividend growth companies that have historically announced annual payout increases in the second half of the month.

In addition to the companies that I provided predictions for, there were other companies that announced dividend increases in the second half of February:

- Drug manufacturer Perrigo (PRGO) announced its 17th year of dividend growth, increasing its annual payout by 7% to $0.90. Perrigo now sports a forward yield of 1.8%.

- Xcel Energy (XEL) announced a 6% increase to $1.72 and now has a forward yield of 2.8%. The utility has grown dividends for 16 years.

- Also extending its streak to 16 years was Waste Management (WM). The company's 6% increase to $2.18 gives it a forward yield of 2.0%.

- Healthcare REIT National Health Investors (NHI) announced a 5% increase to $4.41. National Health extended its dividend growth history to 17 years and now has a forward yield of 5.4%.

There were many other companies that announced dividend increases during the latter half of February. Seeking Alpha author FerdiS provides a rundown in his articles.

Before I provide my predictions for March, we'll take a look at how well I did with my predictions from the second half of February (you can see the original article here):

(All yields are based on stock prices at the market close on Friday, February 28th.)

Results for the 14 Dividend Increase Predictions from the Second Half of February

Analog Devices (ADI)

Prediction: 7.4 - 10.2% increase to $2.32 - $2.38

Actual: 14.8% increase to $2.48

Forward yield: 2.27%

The chip designer and manufacturer beat my expectations in its 18th year of dividend growth.

Albemarle Corporation (ALB)

Prediction: 10.2 - 12.9% increase to $1.62 - $1.66

Actual: 4.8% increase to $1.54

Forward yield: 1.88%

The newest member of the S&P 500 Dividend Aristocrats index held back on its payout boost despite a 10% growth in adjusted EPS.

Chubb Limited (CB)

Prediction: 7.3 - 9.3% increase to $3.22 - $3.28

Actual: 4.0% increase to $3.12

Forward yield: 2.15%

Despite double-digit income growth, the insurer held its 27th year of dividend growth close to its 5-year growth average.

Essex Property (ESS)

Prediction: 5.6 - 6.7% increase to $8.24 - $8.32

Actual: 6.5% increase to $8.31

Forward yield: 2.93%

The residential REIT followed up its addition to the S&P 500 Dividend Aristocrats list with a boost right around its 10-year growth average.

Genuine Parts Company (GPC)

Prediction: 4.3 - 5.6% increase to $3.18 - $3.22

Actual: 3.6% increase to $3.16

Forward yield: 3.63%

The automotive parts company extended its dividend growth streak to 64 years.

The Coca-Cola Company (KO)

Prediction: 1.3 - 3.8% increase to $1.62 - $1.66

Actual: 2.5% increase to $1.64

Forward yield: 3.07%

After adjustments, Coca-Cola's flat EPS growth forced the company to hold its 58th year of growth to below 3%.

McGrath RentCorp (MGRC)

Prediction: 12.0 - 16.0% increase to $1.68 - $1.74

Actual: 12.0% increase to $1.68

Forward yield: 2.42%

Powered by 21% EPS growth, the business-to-business rental company rewarded investors with its 3rd straight 10%+ payout boost.

Old Republic Corporation (ORI)

Prediction: 2.5% increase to $0.82

Actual: 5.0% increase to $0.84

Forward yield: 4.26%

The insurer's 39th year of dividend growth was the largest increase in more than a decade.

Ross Stores (ROST)

Prediction: 11.8 - 15.7% increase to $1.14 - $1.18

Actual: Deferred to March

Ross Stores is likely to announce its next dividend increase around March 3rd when it announces full-year earnings.

The Sherwin-Williams Company (SHW)

Prediction: 10.6 - 13.3% increase to $5.00 - $5.12

Actual: 18.6% increase to $5.36

Forward yield: 1.04%

Despite a heavy debt load, Sherwin-Williams blew away my expectations in its 41st year of dividend growth.

Telephone and Data Systems (TDS)

Prediction: 1.5 - 4.5% increase to $0.67 - $0.69

Actual: 3.0% increase to $0.68

Forward yield: 3.38%

This is the third year of 2 cents annual dividend growth for the telecommunications company.

The TJX Companies (TJX)

Prediction: 13.0 - 19.6% increase to $1.04 - $1.10

Actual: 13.0% increase to $1.04

Forward yield: 1.74%

This is the discount retailer's 24th year of double-digit dividend growth.

Thomson Reuters Corporation (TRI)

Prediction: 1.4 - 2.8% increase to $1.46 - $1.48

Actual: 5.6% increase to $1.52

Forward yield: 2.04%

This is the second year of accelerating dividend growth for the business news provider.

Walmart (WMT)

Prediction: 1.9% increase to $2.16

Actual: 1.9% increase to $2.16

Forward yield: 2.01%

The retail giant 46th year of dividend growth brings its 7th year of a 4-cent annual increase.

Predictions for the 5 Announcements of Dividend Increases in March

Here are my predictions for the five dividend increases I expect in March:

Colgate-Palmolive (CL)

With one of the longest records of dividend growth among publicly-traded companies, the consumer goods company has been a core holding among income investors for decades. Since LBJ's presidency, Colgate-Palmolive has boosted its payout as the company expanded its product lines and earnings. The EPS growth has been flat recently, resulting in a 5-year compounded growth rate of less than 4% annually. It'll be another year of slow dividend growth for Colgate-Palmolive, as the company just reported nearly zero EPS growth in 2019. With a payout ratio below 65%, there's room in Colgate-Palmolive's cash flow for another boost, but it'll be a small one.

Prediction: 2.3 - 3.5% increase to $1.76 - $1.78

Predicted Forward Yield: 2.60 - 2.63%

General Dynamics Corporation (GD)

Aerospace and defense contractor General Dynamics recently reported the full-year 2019 results; the company saw revenue and earnings growth across all segments, punctuated by double-digit revenue growth in the Aerospace and Combat Systems segments. Between the single digit earnings growth and buying back 7 million shares over 2019, per share earnings grew 7% last year. The company has a remarkably consistent growth rate, with year-over-year dividend growth holding steady between 9% and 12% for the last 11 years. Although last year's EPS growth wasn't quite at that rate and despite a 90% debt-to-equity ratio, the company's 36% payout ratio gives General Dynamics plenty of room for its 29th year of dividend growth.

Prediction: 9.8 - 10.8% increase to $4.48 - $4.52

Predicted Forward Yield: 2.81 - 2.83%

Qualcomm (QCOM)

The communications technology and hardware company finds itself at an inflection point, as the rollout of 5G technology ramps up around the world. Late last year, Qualcomm finally settled lawsuits against Apple and Huawei about licensed technology, but the damage was done to fiscal 2019 EPS and the company skipped its annual dividend boost. (The company still showed year-over-year dividend growth from the boost in the first quarter of 2018.) Despite skipping last year's increase, Qualcomm still has a decade-long compounded growth rate of 14%. With 2020 1st quarter EPS down 18%, the company has yet to realize the full benefits of its 5G technology. And given the EPS drop, I think we'll see one of two things happen: either Qualcomm boosts its dividend by a minimal amount in March, or the company defers its dividend increase to the end of the year in order to preserve cash while maintaining its dividend growth streak.

Prediction: 0 - 1.6% increase to $2.48 - $2.52

Predicted Forward Yield: 3.17 - 3.22%

Raytheon (RTN)

Raytheon is the second Aerospace and Defense company expected to announce its annual dividend increase in March. The company is firing on all cylinders: full-year sales are up 8%, and EPS from continuing operations grew by more than 17% in 2019. Raytheon also sports a low debt-to-equity ratio below 40% and a payout ratio around the same level. But the trend in the industry is for consolidation, so it's no wonder that the company agreed to merge with another Aerospace and Defense dividend growth company, United Technologies. The combined company will be called Raytheon Technologies Corporation when the "merger of equals" closes in the first half of 2020. So, the only question is whether Raytheon will bother to announce a dividend increase with the merger pending. I think that investors will see Raytheon's 16th annual payout boost as the combined company continues its dividend growth history, although I suspect we'll see Raytheon hold its increase to below 10%.

Prediction: 8.0 - 9.8% increase to $4.07 - $4.14

Predicted Forward Yield: 2.16 - 2.20%

Williams-Sonoma (WSM)

Specialty retailer Williams-Sonoma, which owns the Pottery Barn group of brands along with its eponymous Williams Sonoma and Williams Sonoma Home brands, completed a decade of dividend growth in 2019. The company is poised for its 11th year of payout increases - it sports a modest debt-to-equity ratio and has a payout ratio below 45%. The company is scheduled to report 2019 earnings in the latter half of March and is guiding 2019 adjusted EPS growth to between 4% and 8%. The EPS growth probably won't allow for a repeat of last year's 11% boost, but investors should see something in line with the 5-year growth average of 7.5%.

Prediction: 5.2 - 8.3% increase to $2.02 - $2.08

Predicted Forward Yield: 3.24 - 3.33%

Summary

After an excellent record in the second half of February, my prediction accuracy fell to about 50%, with underestimates on four of the companies and overestimates on three of them. The highlights of the last two weeks were Analog Devices' 15% increase and Sherwin-Williams' 19% increase. McGrath RentCorp and TJX Companies also rewarded investors with 10%+ increases. And, of course, Walmart bumped its dividend up by another four cents.

Things quiet down in March, with only five long-term dividend growth companies expected to announce increases. Whether Raytheon announces another boost will give investors a clue as to whether the new Raytheon Technologies Corporation will continue to be a dividend growth holding.

If you enjoyed this article and would like to find out how my predictions turn out at the end of March, please follow me by clicking the "Follow" button next to my name at the top of the article. Thanks!

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ANY OF THESE STOCKS over 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.

I hold no positions in the stocks mentioned in this article, but I may take a position in any of them in the near future. Also, my parents bought shares in Walmart nearly 40 years ago and have been collecting dividends ever since.

Comments

[Balthazar-B]

@Harvesting Dividends, since $UTX declined to increase its dividend with the February announcement, as would have been expected otherwise, it would not be surprising if $RTN does not announce an increase, and instead for the three new companies to announce their starting dividends at the same time, just prior to new stock distributions.

[Harvesting Dividends]

Balthazar-B:
Interesting theory. I hope that the combined company keeps the dividend streak going. $RTN usually announces at the end of March; it'll be interesting to see what they do.

Thanks for the comment!

Cheers,
HD

[Balthazar-B]

FWIW, my guess. $RTN annual dividend of $3.77 will be added to the annual $UTX dividend of $2.94, and the total of $6.71 will be divvied among the new companies in as-yet-unknown proportions (probably influenced strongly by target payout ratios for each company). And the higher yields may be tilted towards Otis and Carrier so as to discourage investors dumping those shares and buy UTC/RTX with the proceeds. Hard to predict whether the aggregate of the entities will get a dividend increase or not or when.

While in theory the $UTX breakup is prior to and separate from the $RTN merger, my hunch is that in the end, the dividends will all magically add up as per the above guess.

[xKaotic]

NHI and ESS are two of the most under rated and under mentioned REITs out there. Hope it stays that way. Nice increases coming from many of the insurers as well.

[JamesHPCP]

GD Thursday, above 10%. I Hope!

[User 50039191]

GD is very undervalued, and at that dividend I am seriously considering overallocating if we see some market consolidation at these levels.