GRC - Dividend Growth Predictions For 15 Companies Announcing Annual Boosts In October

2023-10-02 07:23:51 ET

Summary

• Fifteen long-term dividend growth companies, AbbVie among them, will announce their annual increases in October.
• Most of the increases will be in the single digit range, with 10%+ increases expected from A. O. Smith, Lincoln Electric and Waste Connections.
• Microsoft announced a 10% dividend increase in September, and we’re still waiting for announcements from McDonald’s and Lockheed Martin.

This is the latest in my series of articles where I provide predictions of annual dividend increases for long-term dividend growth companies. At the end of August, I provided predictions for 13 dividend growth companies that have historically announced annual payout increases in September. In this article I’ll look at another 15 dividend growth companies that I expect will announce their annual dividend increases in October.

Before I get to that, I want to note four other companies with a history of dividend growth that also announced annual dividend increases in September:

- Texas Instruments ( TXN ) announced its 21st annual dividend increase with a 4.8% boost to an annualized $5.20. The stock now yields 3.27%.

- Starbucks ( SBUX ) extended its dividend growth streak to 14 years with a 7.5% increase, giving the stock a forward yield of 2.50%.

- Telecommunications REIT American Tower ( AMT ) yields 3.94% after announcing a 3.2% increase. This is the 14th year of dividend growth for the company.

- KLA Corporation ( KLAC ) announced its 15th year of dividend growth with an 11.5% boost to give the electronics company a forward yield of 1.26%.

Here are the results from my predictions from September (with the original predictions are available here ), followed by my predictions for the dividend increases that I’m expecting to be announced in October:

(All yields are based on stock prices at the market close on Friday, September 29th.)

Results for Dividend Increase Announcements from September

Accenture plc ( ACN ) – 13 years of dividend growth

Prediction: 14.3 – 16.1% increase to $5.12 - $5.20

Actual: 15.2% increase to $5.16

Forward yield: 1.68%

It’s another year of 15% dividend growth for the business consulting firm.

BancFirst Corporation ( BANF ) – 31 years

Prediction: 10.0 – 12.5% increase to $1.76 - $1.80

Actual: 7.5% increase to $1.72

Forward yield: 1.98%

Despite double-digit EPS growth, the regional bank’s latest increase was less than its 5-year growth average of 13%.

Black Hills Corporation ( BKH ) – 53 years

Prediction: 4.0 – 5.6% increase to $2.60 - $2.64

Actual: Deferred to October

The natural gas and electric utility should announce its next annual dividend increase in late October.

Brady Corporation ( BRC ) – 39 years

Prediction: 2.2 – 4.3% increase to $0.94 - $0.96

Actual: 2.2% increase to $0.94

Forward yield: 1.71%

The identification products company held true to its long-term dividend growth rate, preferring to use excess free cash flow to repurchase outstanding shares.

Fifth Third Bancorp ( FITB ) – 14 years

Prediction: 6.1 – 10.6% increase to $1.40 - $1.46

Actual: 6.1% increase to $1.40

Forward yield: 5.53%

The overhang on regional banks from the Fed’s rapid increase in interest rates is holding dividend growth back at Fifth Third. This year's increase is about half of Fifth Third's 10-year compounded growth rate.

The First of Long Island Corporation ( FLIC ) – 27 years

Prediction: 2.4 – 7.1% increase to $0.86 - $0.90

Actual: 0% increase to $0.84

Forward yield: 7.30%

Unlike Fifth Third above, this regional bank is deferring its annual dividend increase as it deals with headwinds in the banking industry.

Honeywell International Inc. ( HON ) – 14 years

Prediction: 4.9 – 6.8% increase to $4.32 - $4.40

Actual: 4.9% increase to $4.32

Forward yield: 2.34%

It’s another year of 5% dividend growth for Honeywell.

Lockheed Martin Corporation ( LMT ) – 21 years

Prediction: 5.0 – 6.7% increase to $12.60 - $12.80

Actual: Deferred to October

The defense contractor should announce its next increase in early October.

McDonald’s Corporation ( MCD ) – 48 years

Prediction: 9.9 – 11.2% increase to $6.68 - $6.76

Actual: Deferred to October

McDonald’s usually announces its annual dividend increase in the last week of September but, as of the publication of this article, there was no press release. We should hear about the next dividend increase in early October.

New Jersey Resources Corporation ( NJR ) – 29 years

Prediction: 6.4 – 8.3% increase to $1.66 - $1.69

Actual: 7.7% increase to $1.68

Forward yield: 4.13%

The natural gas utility continued its pattern of 7 – 8% dividend growth.

OGE Energy Corporation ( OGE ) – 19 years

Prediction: 1.0 – 2.0% increase to $1.6729 - $1.6895

Actual: 1.0% increase to $1.6729

Forward yield: 5.02%

With a payout ratio north of 80%, the Oklahoma-based utility announced a 2nd year of 1% dividend growth.

Philip Morris International Inc. ( PM ) – 16 years

Prediction: 3.9 – 5.9% increase to $5.28 - $5.38

Actual: 2.4% increase to $5.20

Forward yield: 5.62%

Despite 10% EPS growth, the international tobacco company held back on its dividend growth.

U.S. Bancorp ( USB ) – 13 years

Prediction: 4.2 – 6.3% increase to $2.00 - $2.04

Actual: 0% increase to $1.92

Forward yield: 5.81%

Another regional bank straining from interest rate increases, U.S. Bancorp decided to defer its next dividend increase.

Verizon Communications Inc. ( VZ ) – 20 years

Prediction: 4.6 – 6.1% increase to $2.73 - $2.77

Actual: 1.9% increase to $2.66

Forward yield: 8.21%

Verizon’s latest increase is consistent with its long-term dividend growth rate of 2.5%.

Predictions for Dividend Increases for October

There are 15 long-term dividend growth companies I expect to announce their annual increases in October. First, here are my predictions for three featured companies:

AbbVie Inc. ( ABBV ) – 11 years of dividend growth

The result of a spinoff from Abbott Labs in 2013, AbbVie has grown its dividend ever since. And if they held onto the stock, Abbott shareholders would have enjoyed 30% compounded dividend growth since the spinoff. The company has a stable of well-known drugs including treatments for plaque psoriasis and Crohn’s disease in the form of Humira, Skyrizi and Rinvoq. Other well-known drugs manufactured by AbbVie include Imbruvica, used to treat certain blood cancers, and Vraylar, which is use for certain mental illnesses.

The company’s multiple drugs for Crohn’s disease – covered under the Immunology business segment – allow AbbVie to offset Humira coming off of patent, with sales growth for Skyrizi and Rinvoq more than offsetting Humira’s decline. Sales in the Immunology business segment grew 14% in 2022, offsetting a 9% drop in the oncology business segment. The company-wide sales growth powered 2022 adjusted EPS growth to 16%.

However, AbbVie is warning that 2023's full-year adjusted EPS will be down 17%. The company is also dealing with a heavy debt-to-equity burden of more than 400%. So while dividend growth was fast right after the spinoff from Abbott Labs, investors should expect another year of mid-single digit growth, like last year’s 5% boost.

Prediction: 4.7 – 6.1% increase to $6.20 - $6.28

Predicted Forward Yield: 4.16 – 4.21%

American Electric Power Company, Inc. ( AEP ) – 14 years

While based in Ohio, AEP’s reach extends across 11 states. The company has customers across the Midwest, and in Kentucky, Oklahoma, and Texas. Like many utilities, AEP isn’t a fast dividend grower – the company’s dividend growth rate is solidly in the 5 – 6% range, with last year’s 6.4% increase being one of the larger ones in recent history.

That increase was powered by 7% EPS growth in 2022. But it’ll be difficult for AEP to repeat the increase. While the company aims for 6 – 7% long-term growth, the 2023 guidance is in the 4% range. Residential business is down as inflation is hurting consumers, more than offsetting an increase in commercial business. And AEP is selling off non-core businesses, including transmission businesses Pioneer and Prairie Wind, to invest in its core regulated utility businesses.

With slower EPS growth, AEP won’t match last year’s dividend boost but investors can still look forward to a mid-single digit increase.

Prediction: 3.6 – 5.4% increase to $3.44 - $3.50

Predicted Forward Yield: 4.57 – 4.65%

Rockwell Automation, Inc. ( ROK ) – 14 years

Rockwell Automation works with companies in a wide variety of industries to help them automate their industrial processes. The company breaks out its businesses into three segments: Intelligent Devices – hardware, Software & Control – software, and Lifecycle Services – long-term support. Rockwell has posted a compounded dividend growth rate just shy of 10% over the last decade, but recent growth has been decelerating.

Rockwell continues to see revenue growth across all three segments, with total sales up 11% in 2022. But GAAP earnings fell last year, as the company marked down the value of its investment in digital technology company PTC. Even adjusted for this, earnings growth was essentially zero as Rockwell’s investment spending increased.

The good news is that this stalling is likely to be temporary. Rockwell increased its 2023 earnings guidance earlier this year and now expects adjusted EPS to grow 25% on 15% sales growth in 2023. While this bodes well for future dividend growth, investors will not see the benefits from future projections this year. But with a payout ratio of 50%, even on depressed earnings, Rockwell is likely to reward investors by repeating last year’s 5% dividend increase.

Prediction: 4.2 – 5.1% increase to $4.92 - $4.96

Predicted Forward Yield: 1.72 – 1.74%

Here are my predictions for the 12 other companies which should announce annual increases in October:

Summary

The dividend increases continued in September, although there were no major surprises. As expected, both Accenture and Microsoft announced double-digit boosts, while most of the other announcements were in the mid-single digit ranges. Coming in with small increases – usually done to keep a dividend growth streak going while business is tough – were Verizon with a 2% increase and OGE, which announced a 1% boost.

Of interest, two companies decided to hold off on boosting their dividend, which is another tactic that companies use to keep the growth streak going while conserving cash. Not surprisingly, both companies are regional banks, as the banking sector is under quite a bit of pressure right now due to the Federal Reserve’s interest rate increases. First of Long Island Corporation and U.S. Bancorp both held their dividend steady. It’s unclear when they will resume their dividend growth, but because they normally announce mid-year increases, both companies have until the end of 2024 to keep their year-over-year dividend growth streaks going.

These two companies are only the latest to pause growth in their dividends. Since August, at least three other companies – Walgreens Boots Alliance ( WBA ), International Flavors & Fragrances ( IFF ), and Scotts Miracle-Gro ( SMG ) – also skipped their normal dividend increase.

October will bring increases from another 15 companies, most notably AbbVie which is expected to announce a mid-single digit boost. Double-digit boosts are expected from A. O. Smith, Waste Connections, and Lincoln Electric. And utility Northwest Natural Holding Company should continue its pattern of sub-1% annual increases to extend its dividend growth streak to 68 years.

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