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 August, I provided predictions for 6 dividend growth companies that have historically announced annual payout increases in September.
Two notes before I get into my results from last month and my predictions for next month. First, OGE Energy (OGE) announced its 14th year of dividend growth, raising its annual payout by 6.2% to $1.44. The Oklahoma-based utility has a forward yield of 3.41%.
Second, I would normally provide a prediction for V. F. Corporation (VFC), but the clothing company spun off Kontoor Brands (KTB) in June, distributing 1 share of Kontoor for every 7 shares of V. F. Corp. Between the two companies, the dividend didn’t change but the dividend policies of V. F. Corp and Kontoor going forward aren’t clear. We should find out by the end of October if V. F. Corporation will continue to raise dividends annually.
And now, the results from last month:
(All yields are based on stock prices at the market close on Friday, September 27th.)
Results for the 6 Dividend Increase Predictions from September
Brady Corporation (BRC)
Prediction: 2.4 – 4.7% increase to $0.87 – $0.89
Actual: 2.4% increase to $0.87
Forward yield: 1.64%
Brady’s 33rd year of dividend growth was consistent with the company’s history and right in line with the 10-year average growth rate of 3%.
Lockheed Martin (LMT)
Prediction: 10.0 – 13.6% increase to $9.68 – $10.00
Actual: 9.1% increase to $9.60
Forward yield: 2.48%
Lockheed-Martin broke its streak of double-digit payout boosts this year – the company’s 17th year of dividend growth.
Prediction: 10.3 – 12.9% increase to $5.12 – $5.24
Actual: 7.8% increase to $5.00
Forward yield: 2.35%
The fast food company’s 43rd year of dividend growth was roughly half of last year’s increase.
Prediction: 14.1 – 17.4% increase to $2.10 – $2.16
Actual: 10.9% increase to $2.04
Forward yield: 1.48%
I expected more from Microsoft in its 17th year of dividend growth, but it still rewarded investors with its first double-digit increase in 4 years.
New Jersey Resources (NJR)
Prediction: 4.3 – 6.8% increase to $1.22 – $1.25
Actual: 6.8% increase to $1.25
Forward yield: 2.78%
The natural gas utility hit the high end of my prediction in its 25th year of dividend growth.
Prediction: 2.1 – 3.7% increase to $2.46 – $2.50
Actual: 2.1% increase to $2.46
Forward yield: 4.08%
Verizon’s 25th year of dividend growth was nearly identical to last year’s boost and consistent with the company’s 10-year average.
Predictions for October’s 11 Announcements of Dividend Increases
Here are my predictions for the 11 dividend increases I expect in October:
A. O. Smith Corporation (AOS)
A. O. Smith manufactures water heaters, air and water purification systems, and boilers for customers worldwide. The company’s dividends have been on a tear, more than tripling over the last 5 years to an annualized $1.76. This dividend growth has been supported by outstanding EPS growth, primarily through revenue increases in China. Although the company has made a push into India recently, with its growing middle class, the growth there wasn’t enough to compensate for the effects of the trade war with China – the company is guiding full year EPS to a midpoint of $2.38, down nearly 9% from 2018. The drop in EPS pushes the payout yield to a relatively high 75%; that, along with the continued uncertainty of the trade war, should limit A. O. Smith’s 27th year of dividend growth to the single digits.
Prediction: 4.5 – 8.1% increase to $1.84 – $1.90
Predicted Forward Yield: 3.86 – 3.99%
Brown & Brown Inc. (BRO)
Insurance broker Brown & Brown has gone on an acquisition spree, announcing the purchase of 5 small insurance companies in July and August alone. Boosted by these acquisitions and 3% organic growth, Brown & Brown reported 22% income per share growth in the first half of 2019. This strong growth follows up another 22% growth in 2018. From a dividend growth standpoint, Brown & Brown has been good for investors, compounding its payout by 8% over the last decade, and this year should be another good one. I’m expecting Brown & Brown’s 26th year of dividend growth to be above the 10-year growth average, with a decent chance of being in the double digits.
Prediction: 9.4 – 15.6% increase to $0.35 – $0.37
Predicted Forward Yield: 0.98 – 1.03%
Cintas Corporation (CTAS)
To its customers, Cintas is best known for providing uniforms for businesses across the United States. To dividend investors, it’s known mostly for two things: being one of only a few companies that pays dividends annually, and for a fantastic dividend growth rate. With a growth rate of more than 20%, Cintas has grown its dividend by 250% over the last 5 years to a current rate of $2.05. Cintas recently announced its fiscal 2019 results and, once again, the company has hit a home run and set itself up for another outstanding dividend increase. Adjusted EPS were up 28% to $7.60 and, although the company is guiding EPS growth for 2020 to “only” 9 – 11%, I expect Cintas 37th year of dividend growth to be in the 20% range.
Prediction: 19.5 – 24.4% increase to $2.45 – $2.55
Predicted Forward Yield: 0.92 – 0.96%
Eaton Vance Corporation (EV)
The investment manager saw assets under management rise 7% year-over-year in the third quarter of fiscal 2019, which was the main driver for a 13% increase in EPS over the first three quarters of the FY. This EPS growth is on top of 29% EPS growth to $3.21 in full year 2018. Last year’s dividend increase of 13% was above the company’s 5-year average of 9.3%, and with a payout ratio below 50% and the year-to-date EPS growth, I think Eaton Vance’s 39th year of dividend growth will be around last year’s increase.
Prediction: 11.4 – 15.7% increase to $1.56 – $1.62
Predicted Forward Yield: 3.45 – 3.58%
Lincoln Electric Holdings (LECO)
Lincoln Electric has done well for income investors, boosting its dividend by more than 10% in 7 of the last 8 years, resulting in a decade long growth average of more than 12%. With 25% EPS growth in 2018, it was probably too much to ask that level of EPS growth to continue and, in fact, the global manufacturer of arc welding systems has saw EPS growth fall to 6% in the first half of 2019. Despite the slowdown in the growth rate, the company’s 40% payout ratio leaves plenty of room for another double-digit payout increase as Lincoln Electric hits the quarter-century mark for dividend growth.
Prediction: 9.6 – 13.8% increase to $2.06 – $2.14
Predicted Forward Yield: 2.40 – 2.49%
Middlesex Water Company (MSEX)
The New Jersey-based utility company has grown dividends for 46 years. Last year’s increase of 7% was nearly triple the 10-year growth average of 2.6%, and I’m expecting another good increase this year. In addition to the 10% EPS growth over the first half of this year due to an approved rate increase, the company had a very nice 2018. Due to the tax cut legislation and a positive decision from the IRS, Middlesex Water grew its earnings more than 40% to $1.96. Although the company can’t expect positive tax law decisions each year, the current payout ratio below 50% leaves headroom for another nice increase on par with last year’s.
Prediction: 6.3 – 10.4% increase to $1.02 – $1.06
Predicted Forward Yield: 1.57 – 1.63%
Northwest Natural Gas (NWN)
Northwest Natural Gas, a provider of natural gas services to the Pacific Northwest, has one of the longest dividend growth streaks among publicly traded companies. Since 1956, through good times and bad, investors have seen consistently growing income from the company. Unfortunately, the recent dividend boosts have been as small as can be: over each of the last 5 years, Northwest Natural Gas has grown its dividend by a single penny, resulting in an average growth rate below 1%. The company’s current payout ratio is 85%, so I’m looking for another year of minimal dividend growth.
Prediction: 0.5 – 2.1% increase to $1.91 – $1.94
Predicted Forward Yield: 2.68 – 2.72%
Prosperity Bancshares (PB)
The Texas-based financial holding company posted 6% EPS growth in the first half of 2019, following up to 18% EPS growth in 2018. This earnings growth has driven remarkably consistent dividend boosts for Prosperity. With one exception in 2017, the company’s year-over-year dividend growth has been between 10 and 12% for the last decade, which has resulted in 5 and 10-year dividend growth averages of 11%. 2019 will be the 20th year of dividend growth for Prosperity Bancshares and with a payout yield below 40%, I’m looking for a dividend increase around the growth average.
Prediction: 11.0– 13.4% increase to $1.82 – $1.86
Predicted Forward Yield: 2.56 – 2.62%
RPM International (RPM)
Specialty chemical company RPM manufactures products used as building materials, specialty coatings and sealants. The company has a modest dividend growth history, with a 10-year average of 5.5%. If you owned this stock last year, you were rewarded with a more than 9% payout boost. But, despite guidance for EPS growth this year of more than 20%, EPS growth in fiscal 2019 (which just ended) was only 3%. Given this, I think that we’ll see RPM’s 45th year of dividend growth to be a little above the 10-year average with a small chance of a double-digit increase.
Prediction: 5.7 – 10.0% increase to $1.48 – $1.54
Predicted Forward Yield: 2.16 – 2.24%
Stepan Company (SCL)
Like RPM above, Stepan is a chemical company. Unlike RPM, Stepan’s products are used in more “niche-y” applications, including the manufacture of cleaning products. 2019 will be Stepan’s 52nd year of dividend growth. However, this year’s increase will probably not match last year’s 11% boost. The company saw 5% EPS growth in 2018, and earnings are flat so far in 2019. In favor of a decent size increase is the payout yield near 20% and a low debt burden. So, while I think there’s a chance for an increase in line with the decade-long average of 8%, we won’t see anything higher.
Prediction: 5.0 – 8.0% increase to $1.05 – $1.08
Predicted Forward Yield: 1.09 – 1.13%
UMB Financial Corporation (UMBF)
UMB Financial is a Kansas City, MO – based financial holding company with a consistent dividend growth pattern. The company has grown dividends for the last quarter century, and over the last 5 and 10 years has compounded dividends at 6% annually. Although the company saw less than 3% EPS growth in the first half of the year, it looks like UMB Financial will reward investors in October with another increase in line with its average growth rate, powered by 7% EPS growth in 2018 and a low payout yield of 30%.
Prediction: 5.0 – 8.3% increase to $1.26 – $1.30
Predicted Forward Yield: 1.94 – 2.00%
I was 50-50 on my predictions last month, with half of them accurate and the other half optimistic. Fortunately, there were no big misses on my part – my optimism was only by a few pennies in each case. However, instead of getting the three double-digit increases last month, we only got one – from Microsoft.
Next month brings an expectation of at least three and as many as seven double-digit increases. I’m most confident about Cintas’ payout boost; the company has an outstanding growth record and continues to post EPS growth to justify another nice increase in its dividend.
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Disclosure: I am/we are long AOS, 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.