This is the latest in a series of articles where I provide predictions of annual dividend increases for a variety of long-term dividend growth companies. Back at the end of June, I provided predictions for 10 dividend growth companies that have historically announced annual payout increases in July. Here, at the beginning of August, I provide my predictions for another 11 companies that historically have increased their dividends over the course of the month.
In addition to the companies listed below, two others announced their annual dividend increase in July. Tobacco company Altria (MO) announced a 2.4% increase to an annualized $3.44 and now has a forward yield of 8.36%. Scotts Miracle-Gro (SMG) announced a 6.9% increase to $2.48 and now has a forward yield of 1.56%. The lawn and garden care company also announced a special dividend of $5. Shareholders of record on August 27 will be entitled to the special dividend and the latest quarterly dividend.
Before I offer the predictions for August's stocks, here are how my predictions from July 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, July 31st.)
Kellogg Company (K)
Prediction: 0 - 1.8% increase to $2.28 - $2.32
Actual: 0% increase to $2.28
Forward yield: 3.30%
With a heavy debt load and two straight years of negative EPS growth, the food company is holding its dividend steady for the time being.
Maxim Integrated (MXIM)
Prediction: 0 - 2.1% increase to $1.92 - $1.96
Actual: 0% increase to $1.92
Forward yield: 2.82%
After Analog Devices (ADI) announced it would merge with Maxim, the integrated chip company announced that it would pay one more dividend at the current rate and stop paying its dividend for at least 4 quarters.
National Retail Properties (NNN)
Prediction: 0 - 1.9% increase to $2.06 - $2.10
Actual: 1.0% increase to $2.08
Forward yield: 5.87%
Although faced with uncertainty in the retail market, the REIT extended its growth streak to 31 years.
PPG Industries (PPG)
Prediction: 1.0 - 2.9% increase to $2.06 - $2.10
Actual: 5.9% increase to $2.16
Forward yield: 2.01%
Despite a double-digit drop in EPS, specialty chemical company PPG beat my expectations in its 49th year of dividend growth.
Ryder Systems, Inc. (R)
Prediction: 0 - 1.8% increase to $2.24 - $2.28
Actual: 0% increase to $2.24
Forward yield: 6.12%
The earnings loss this year forced the fleet management and supply chain company to hold its dividend steady.
The J. M. Smucker Company (SJM)
Prediction: 3.4 - 5.7% increase to $3.64 - $3.72
Actual: 2.3% increase to $3.60
Forward yield: 3.29%
The food company's 23 year of dividend growth was slightly below my expectations.
Stanley Black & Decker (SWK)
Prediction: 2.9 - 5.1% increase to $2.84 - $2.90
Actual: 1.4% increase to $2.80
Forward yield: 1.83%
The tool manufacturer did reward investors with its 52nd year of dividend growth, but just barely.
Walgreens Boots Alliance (WBA)
Prediction: 0 - 2.1% increase to $1.83 - $1.87
Actual: 2.1% increase to $1.87
Forward yield: 4.59%
Originally expected in late June, Walgreens Boots Alliance's 45th year of dividend growth is its smallest boost in more than 15 years.
West Pharmaceutical Services (WST)
Prediction: 6.3 - 12.5% increase to $0.68 - $0.72
Actual: Announcement deferred
Last year, West Pharmaceuticals announced its 4th quarter dividend increase in July. It looks like the company will defer the announcement to October. I'll revisit the company then.
Essential Utilities (WTRG)
Prediction: 4.0 - 8.0% increase to $0.9747 - $1.0122
Actual: Announcement deferred
Aqua America traditionally announces its annual increase in July. The newly formed Essential Utilities should announce its annual increase in the near future.
Here are my predictions for the 11 dividend increases I expect in August:
BancFirst Corporation (BANF)
Bank holding company BancFirst has more than 100 locations across Oklahoma and starts 2020 with 22 straight years of dividend growth and little debt. The company has an outstanding growth record, having compounded its dividend at more than 10% over the last decade, including a 40% increase in 2018. There's more good news for investors: the company will be joining the S&P SmallCap 600 index in early August, which should drive some demand for the stock. Like most companies, BancFirst got hit hard from the economic downturn and saw year-over-year EPS fall 33% in the first half of 2020. Even assuming that the EPS drop continues throughout the entire year, BancFirst still has a healthy payout yield of less than 50%. There's plenty of room for BancFirst's 23rd year of dividend growth and I expect to see the company announce an increase right around last year's 6.7% boost.
Prediction: 4.7 - 7.8% increase to $1.34 - $1.38
Predicted Forward Yield: 3.08 - 3.17%
Badger Meter (BMI)
It's always notable when a company has been able to grow its dividend over many years without taking on any debt burden, because it means that the dividend growth has come from growth in earnings and cash flow, and not from financial shenanigans. Badger Meter is one of the few companies that has done this. The company designs and manufacturers flow measurement, and control and communications systems for water utilities, and other customers. Despite a 4% drop in sales in the first half of the year, Badger Meter is in a good position for its 29th year of dividend growth. The company's payout ratio is a modest 42% and, despite the economic chaos, sales fell less than 3% in the first half of the year. While we won't see an increase on the order of the company's historic growth rate (11% compounded over each of last 5 years), I still expect a decent increase.
Prediction: 5.9 - 8.8% increase to $0.72 - $0.74
Predicted Forward Yield: 1.15 - 1.18%
Community Bank System (CBU)
The Syracuse, NY-based bank holding company has 230 facilities across a region encompassing upstate New York, eastern Pennsylvania, western Massachusetts, and Vermont. The company has compounded dividend growth at 6% over the last decade and is continuing to expand by completing a merger with Steuben Trust Corporation, a small bank based in western New York State. Community Bank System sports a payout ratio of 50% and very little debt. Because of this, the company is in a good position for continued dividend growth throughout the economic downturn. Community Bank hasn't been unaffected by the pandemic-induced recession; in fact, adjusted EPS were down 6% in the 1st quarter. As of mid-April, the company had granted 3-month repayment deferrals on 10% of its total loan balance to nearly 4300 customers. Given the risks, I think we'll see Community Bank announce its 29th year of dividend growth, but at a level somewhere at or a little lower than the average growth rate.
Prediction: 3.7 - 6.1% increase to $1.70 - $1.74
Predicted Forward Yield: 3.02 - 3.09%
Carlisle Companies (CSL)
This niche industrial manufacturer has grown its dividend for 43 years, rewarding investors with a compounded growth rate of 11% over the last decade. Carlisle tends to operate pretty conservatively, which is good since it was hit hard in the first half of the year from the pandemic-driven recession. Revenues over the first 6 months of the year across all business sectors were down between 25 and 35%, and EPS were down 40%. This comes after EPS were down 18% in 2019. The company is committed to share buybacks and paying dividends, but is more focused on buybacks, having spent more than three times the amount on share buybacks last year. Investors can expect to see Carlisle's 44th year of dividend growth, but I expect a boost closer to the growth rate and nothing like last year's 25% increase.
Prediction: 10.0 - 15.0% increase to $2.20 - $2.30
Predicted Forward Yield: 1.85 - 1.93%
Dover Corporation (DOV)
Diversified manufacturer Dover has one of the longest dividend growth streaks among publicly traded companies. At 64 years, Dover's dividend growth streak began during the Eisenhower administration. Times are getting tough for Dover; the company's still making money, but it's guiding this year's adjusted EPS to a drop of between 11 and 16%. Although Dover has a decent amount of debt, the company's payout ratio of 40% leaves room for another year of dividend growth. Investors have seen 4 cent increases over each of the last two years; with the expected drop in EPS, I think we'll see a 3rd year of a 4 cent increase.
Prediction: 2.0% increase to $2.00
Predicted Forward Yield: 1.94%
Federal Realty Trust (FRT)
As expected, this retail focused REIT has been hit hard in the economic downturn. Many of its tenants were ordered to be closed due to the pandemic and the company recently reported that it is only collecting about half of its recurring rent payments. Federal Realty reacted by going out into the credit market to borrow additional funds to increase its cash position. Lower interest rates are benefitting the company -it borrowed $400 million for 10 years at 3.6% in May. For the quarter ending on March 31st, the company suffered a small drop in funds from operations (FFO), but the fact is that the full effects of the pandemic hadn't been fully realized at that point. Federal Realty is scheduled to announce its 2nd quarter results on August 5th, and those results will show how the company is fairing. Given the pandemic and the resulting hits to retail throughout the country, I expect Federal Realty to hold its dividend steady. While a cut is still a real possibility, the additional debt gives the company some breathing room.
Prediction: 0% increase to $4.20
Predicted Forward Yield: 5.50%
International Flavors & Fragrances (IFF)
Despite the uncertainties from the recession, the specialty chemical company continues posted year-over-year adjusted EPS growth of 3% in the first quarter of the year. This was after earnings came in flat in 2019, at $6.17 per share. Historically, IFF has grown dividends by double-digits, compounding its payout by 11.5% over the last decade, but last year only managed a 3% increase. The company has a healthy payout ratio below 50% but despite the EPS growth in the 1st quarter, it's likely that International Flavors will play it safe like last year and come in with a small increase in its 18th year of dividend growth.
Prediction: 1.3 - 2.7% increase to $3.04 - $3.08
Predicted Forward Yield: 2.41 - 2.45%
Illinois Tool Works (ITW)
Like many industrial companies, Illinois Tool Works is seeing an impact to revenues from the slowdown. 1st half revenues are down 20% and EPS are down even more: 25%. Without guidance, it's hard to know what to expect for the rest of the year, but assuming that business continues in the same in the second half, Illinois Tool is looking at full year EPS of around $6.20 and a payout ratio close to 70%. The company has plenty of liquidity, but I expect Illinois Tool will hold back on its 45th year of dividend growth. We won't see anything close to the company's 5-year average of 18%, but I expect there's a chance we'll see an increase close to last year's 7% boost.
Prediction: 3.7 - 6.5% increase to $4.44 - $4.56
Predicted Forward Yield: 2.40 - 2.46%
Nordson Corporation (NDSN)
Nordson manufactures equipment for dispensing fluids like adhesives, coatings and sealants, as well as test and inspection equipment. The company has a well-established track record, having grown dividends for 56 years. After posting a 10% drop in EPS in 2019, due mostly to a drop in profits in the company's Electronic Systems and Fluid Management groups, Nordson showed small EPS growth in the first half of 2020. Like many long-time dividend growers, this is a well-managed, conservative company. Although it has rewarded investors with compounded growth of nearly 15% over the last decade, I expect that Nordson will come through with its 57th year of growth, but at roughly half the average growth rate.
Prediction: 5.3 - 7.9% increase to $1.60 - $1.64
Predicted Forward Yield: 0.83 - 0.85%
Ritchie Brothers Auctioneers Inc. (RBA)
Ritchie Brothers operates multiple online and in-person auction channels focused on heavy equipment, trucks and other assets. The company's channels include Govplanet, which auctions off surplus government equipment and Mascus, which focuses on the European market. The Vancouver, Canada-based company posted good growth in 2019, boosting its EPS by 23%, and followed up with another 24% year-over-year growth in the first quarter of 2020. This is one of only a few companies that seems to be able to benefit from the massive economic downturn, as companies declare bankruptcy and look to liquidate inventory. The company is well-positioned to extend its dividend growth streak to 18 years in August.
Prediction: 7.5 - 12.5% increase to $0.86 - $0.90
Predicted Forward Yield: 1.86 - 1.94%
Westlake Chemical Corporation (WLK)
Westlake Chemical has two primary business lines: Olefins/Polyethylene, which makes products used in packaging, coatings and films, and Vinyl, which makes vinyl resin used to manufacture PVC. The company has grown dividends for 16 years, compounding them at 12% over the last 5 years. Westlake suffered from lower prices for several of its products last year, with EPS falling by more than 50%. While it looks like things may be turning around - EPS in the first quarter more than doubled from the same period last year - the bulk of the increase came from a one-time tax benefit. Given the lower earnings in 2019, I expect Westlake's 17th year of dividend growth to be similar to last year's 5% increase.
Prediction: 4.8 - 8.6% increase to $1.10 - $1.14
Predicted Forward Yield: 2.02 - 2.09%
Not surprisingly, the pandemic continues to impact businesses across the world. Among long-time dividend growth companies, the announcements of zero-to-moderate dividend increases continued in July. This is not unexpected, but still disappointing. Even the one pleasant surprise - a 6% boost from PPG Industries - was still an increase in the mid-single digits.
August will bring more announcements of dividend increases. And perhaps I'm being too optimistic, but things look pretty good for the companies I'm looking at. Not because the economy has improved - it hasn't and it looks like this is going to be a long slog to get back to whatever new normal we end up with, but my hopes are up mostly because of this month's companies. The group consists mainly of those with histories of large compounded growth rates (Carlisle, Nordson, International Flavors, and Westlake), low debt levels and good liquidity (BancFirst and Community Bank) or that stand to benefit from the recession (Ritchie Brothers). We'll find out over the next month if my optimism is appropriate.
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Disclosure: I am/we are long WBA. 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.