- More companies continue to risk falling off the list of dividend growth stocks as they hold payouts steady.
- While 5 of 8 expected increases in late May failed to materialize, defense contractor Northrop Grumman came through with the biggest boost.
- Until the economy improves we can expect this to continue. I expect to see as many as 5 dividend growth stocks skip their annual increase in June.
This is the latest in a series of articles where I provide my predictions of annual dividend increases for a variety of long-term dividend growth companies. Back in the middle of May, I provided predictions for 8 dividend growth companies that have historically announced annual payout increases in the second half of the month. Now, at the beginning of June, I provide my predictions for another 8 companies that historically have increased their dividends over the course of the month.
Before I offer these predictions, here are how my predictions from the second half of May came out (you can see the original article with my predictions here):
(All yields are based on stock prices at the market close on Friday, May 29th.)
Results for the Eight Dividend Increase Predictions from the Second Half of May
Ashland Global Holdings Inc. (ASH)
Prediction: 3.6–7.3% increase to $1.14-1.18
Actual: 0% increase to $1.10
Forward yield: 1.64%
I was hoping that the specialty chemical producer would boost its dividend after 14% EPS growth in 2019, but it held the payout steady. 2020 will be Ashland’s 11th year of dividend growth due to 2019’s mid-year boost.
Bunge Limited (BG)
Prediction: 3.0–6.0% increase to $2.06-2.12
Actual: 0% increase to $2.00
Forward yield: 5.13%
While Bunge still has until the end of the year to boost its dividend, it looks like the agribusiness company will stop its dividend growth streak at 18 years.
B&G Foods, Inc. (BGS)
Prediction: 0–2.1% increase to $1.90-1.94
Actual: 0% increase to $1.90
Forward yield: 8.18%
B&G Foods is also at risk of ending its dividend growth streak this year, unless it boosts the payout by the end of 2020. If it doesn’t, the company will end its dividend growth streak at 9 years.
The Clorox Company (CLX)
Prediction: 6.1–8.0% increase to $4.50-4.58
Actual: 4.7% increase to $4.44
Forward yield: 2.15%
One of the few winners during the pandemic, the household products company extends its dividend growth record to 43 years with the 5% increase.
Donaldson Company, Inc. (DCI)
Prediction: 4.8–7.1% increase to $0.88-0.90
Actual: 0% increase to $0.84
Forward yield: 1.77%
The filtration manufacturer was another company that decided to hold its payout steady.
Flowers Foods, Inc. (FLO)
Prediction: 0–2.6% increase to $0.76-0.78
Actual: 5.3% increase to $0.80
Forward yield: 3.39%
The maker of baked goods beat my expectations in its 19th year of dividend growth.
Lowe's Companies, Inc. (LOW)
Prediction: 5.5–10.0% increase to $2.32-2.42
Actual: 0% increase to $2.20
Forward yield: 1.69%
Home improvement retailer Lowe’s took on more debt to increase its liquidity in the face of the pandemic. It looks like it’s holding that cash in reserve to make it through the economic downturn.
Northrop Grumman (NOC)
Prediction: 0.8–2.3% increase to $5.32-5.40
Actual: 9.8% increase to $5.80
Forward yield: 1.73%
It seems massive government spending is good for defense companies. Northrop Grumman blew away my expectations in its 17th year of dividend growth.
Predictions for the Eight Announcements of Dividend Increases in June
Here are my predictions for the 8 dividend increases I expect in June:
Casey’s General Stores (CASY)
Operator of more than 2,000 convenience stores across the Midwest, Casey’s has grown quickly over since opening its first store in 1968. The company celebrated a quarter century of dividend growth last year with a 10% boost, part of a decade-long compounded growth rate of more than 14%. As is expected, the foot traffic into its stores has dropped considerably due to the pandemic and associated lockdowns. Casey’s has, therefore, withdrawn its 2020 financial guidance. The company posted a good 2019, growing EPS by 12% and setting the company up for another year of double-digit payout growth before the pandemic hit. Casey’s also maintains a low debt level of 45% debt/equity and a payout ratio below 20%. I think the company will pull back on its 26th year of dividend growth, but we’ll still see a boost from Casey’s in mid-June.
Prediction: 3.1–9.4% increase to $1.32-1.40
Predicted Forward Yield: 0.83–0.88%
The industrial equipment maker has already announced that it may experience supply chain constraints, along with the reduced demand from the current economic situation. Caterpillar is already seeing the effects of the reduced demand, with sales and EPS in the quarter that ended on March 31st down 21% and 39%, respectively. This comes on top of flat earnings for 2019. Burdened as well with a debt load of 170% of equity, the company is unlikely to reward investors with a boost close to the 5-year growth average of 8%. With industrial demand having fallen off a cliff, I expect Caterpillar to either keep the dividend steady or announce a token increase.
Prediction: 0–1.9% increase to $4.12-4.20
Predicted Forward Yield: 3.43–3.50%
John Wiley & Sons (JW.A)
It’s going to be a rough year for the producer of research and scientific publications. John Wiley & Sons just lowered its FY20 guidance across the board, with expected adjusted EPS down 20–25%. This comes after an 8% drop in 2019. The good news is that, at 70% of equity, the company doesn’t have a massive debt load. And even accounting for the expected EPS drop this year, John Wiley still has a payout yield of only 60%, leaving room for another increase. Over the last 5 years, the company has boosted its payout by 4 cents each year, and that is the best that I expect from John Wiley in its 27th year of dividend growth. There is a decent chance that the company just maintains its dividend this year, and relies on last year’s mid-year boost to show year-over-year growth.
Prediction: 0–2.9% increase to $1.36-1.40
Predicted Forward Yield: 3.38–3.48%
The Kroger Company (KR)
The Kroger Company operates supermarket chains under a variety of brand names including Ralphs, King Soopers, Harris Teeter and (of course) Kroger. 2020 will be the company’s 15th year of dividend growth. Kroger has been an income investor’s dream, compounding its payout at 12% over the last decade. The company also has an extensive stock buyback program, and has reduced the number of outstanding shares by 17% over the last 5 years. Kroger has seen costs increase due to the pandemic, as it provides bonuses and temporary wage increases to employees, and modifies its stores to account for the physical distancing requirements imposed by many states. The company recently reported 4% growth in adjusted EPS, which won’t support continued 10%+ increases, but Kroger’s payout ratio is below 30%. I think we’ll see some moderation from Kroger’s dividend increase this year, but it will still be a decent boost.
Prediction: 3.1–9.4% increase to $0.66-0.70
Predicted Forward Yield: 2.02–2.15%
National Fuel Gas (NFG)
With every crisis comes opportunities and National Fuel Gas is taking advantage of the oil shock that came along with the economic downturn to acquire Shell’s upstream and midstream assets in Pennsylvania. The acquisition adds to its services in northwestern Pennsylvania and will help the company continue to grow earnings and dividends. National Fuel Gas will complete half a century of dividend growth in 2020. Like many companies, National Fuel’s EPS is under pressure from the economic slowdown. However, I do think we will see another dividend boost in June. First, the company continues to sport a payout ratio below 60%, leaving room for growth. Second, over each of the last 10 years, National Fuel Gas has boosted its dividend by 4 cents. A half century of dividend growth has a momentum all of its own; I expect we’ll see another year of 4-cent payout growth, although I think there’s a chance National Fuel Gas holds its dividend steady.
Prediction: 0-2.3% increase to $1.74-1.78
Predicted Forward Yield: 4.15–4.24%
Target Corporation (TGT)
Target’s business has increased since the coronavirus hit; 1st quarter sales are up more than 10% year over year, with digital sales up more than 140%. This increase in sales has been offset, however, by an increase in costs in response to the pandemic. In late March, the company announced a $300 million increase in costs related to additional wages, bonuses and benefits, including a temporary $2/hour wage increase. In late April, the company extended its wage increase to the end of May and announced additional benefits related to the pandemic. The company has compounded its dividend by nearly 15% over the last decade, but I think Target’s 49th year of dividend growth will bring an increase similar to last year’s 3% boost.
Prediction: 0–3.0% increase to $2.64-2.72
Predicted Forward Yield: 2.16–2.22%
UnitedHealth Group (UNH)
Diversified healthcare company UnitedHealth has really rewarded income investors with its dividend growth over the last decade. The company has boosted its dividends by 20% in each of the last two years. In fact, that 20% growth has been the smallest increase since the company began growing its dividends in 2010. It becomes increasingly difficult to keep up that level of growth over time and, as expected, UnitedHealth’s EPS growth is slowing. The company posted 17% adjusted EPS growth in 2019 but is expecting 2020 growth to be less than 9%. (Although the company could withdraw its guidance later on, UnitedHealth provided this outlook in mid-April, after the severity of the economic slowdown was apparent.) With the expected earnings slowdown and the overall recession, I expect UnitedHealth to provide a decent dividend boost but nowhere near the 5-year growth average.
Prediction: 6.5–12.0% increase to $4.60-4.84
Predicted Forward Yield: 1.51–1.59%
Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance saw flat EPS growth in 2019 and followed that up with a 16% drop in EPS in the first half of fiscal 2020. Although the company hasn’t withdrawn its full-year guidance, Walgreens was expecting – at best – another year of flat EPS this year. The company has taken steps to increase liquidity to make it through the recession, recently borrowing $1.5 billion in the bond market. The bright spot is that, based on 2019’s EPS, the company sports a payout ratio of around 30%, leaving room for a 45th year of dividend growth. But with a lot of companies playing it safe in these times, I think there’s only a small chance that Walgreens Boots Alliance boosts its dividend in late June.
Prediction: 0–2.1% increase to $1.83-1.87
Predicted Forward Yield: 4.26–4.35%
The pandemic and associated economic slowdown continue to take their effects on company earnings as the dividend cuts pile up. In this environment, a company that is able to hold its payout level is treading water. Any increases, and they’re ahead of the game.
I lowered my expectations back in April but as I mentioned in my last article, was more optimistic for late May. It turns out that my optimism was misplaced. Of the 8 companies I covered in the last article, five held their dividends steady, breaking their pattern of late May increases. Bunge and B&G Foods are at risk of losing their status as dividend growth stocks. And we’ll see several more companies defer their increases in June.
As the scope of the economic devastation becomes obvious and questions remain about how quickly people’s spending will return to normal, companies seem to be getting more conservative, not less. To me, the best indicator for a dividend growth stock is the length of its growth history. Companies with lengthy growth streaks have demonstrated the ability to navigate through other tough economic times and are more likely to make it through this one.
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Analyst’s Disclosure: I am/we are long BGS. 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 may take a position in any of the stocks mentioned in this article in the near future.
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