UNP - Lowe's Medtronic Among 10 Companies To Boost Dividends In Late May

2023-05-14 07:23:33 ET

Summary

• The first half of May brought dividend boosts from several popular companies, including Apple and Cardinal Health.
• The big increases came from Chesapeake Utilities, Pool Corporation, and Tetra Tech.
• Investors will see good boosts from Lowe’s Companies, TowneBank, and Insperity in the latter half of May.

This is the latest in my series of articles where I provide predictions of annual dividend increases for a variety of long-term dividend growth companies. At the end of March, I provided predictions for 12 dividend growth companies that have historically announced annual payout increases in the first half of May. In this article, I'll look at another 10 dividend growth companies that I expect will announce their annual dividend increases in the second half of May.

Here are the results from my predictions from the first half of the month (as always, the original predictions are available here ), followed by my predictions for the dividend increases that I'm expecting to be announced in the next two weeks:

(All yields are based on stock prices at the market close on Friday, May 12th.)

Results for Dividend Increase Announcements from First Half of May

Apple Inc. ( AAPL ) - 11 years of dividend growth

Prediction: 6.5 - 8.7% increase to $0.98 - $1.00.

Actual: 4.3% increase to $0.96.

Forward yield: 0.56%.

Apple's boost this year was nearly identical to last year's increase, as it looks like the company is hunkering down for a potential recession.

Alerus Financial Corporation ( ALRS ) - 25 years

Prediction: 5.6 - 8.3% increase to $0.76 - $0.78.

Actual: 5.6% increase to $0.76.

Forward yield: 5.42%.

A 30% drop in earnings resulted in a big slowdown in dividend growth for the financial company.

Cardinal Health, Inc. ( CAH ) - 27 years of dividend growth

Prediction: 1.0 - 2.0% increase to $2.0026 - $2.0225.

Actual: 1.0% increase to $2.0026.

Forward yield: 2.36%.

Inflation and supply chain effects hit the company's earnings, resulting in a minimal dividend increase.

CNO Financial Group, Inc. ( CNO ) - 11 years

Prediction: 3.6 - 7.1% increase to $0.58 - $0.60.

Actual: 7.1% increase to $0.60.

Forward yield: 2.86%.

The insurer's dividend growth slowed from last year's 8% increase.

Chesapeake Utilities Corporation ( CPK ) - 20 years

Prediction: 7.5 - 11.2% increase to $2.30 - $2.38.

Actual: 10.3% increase to $2.36.

Forward yield: 1.87%.

The utility continues to grow its payout at 10%, maintaining its 5-year dividend growth rate.

Expeditors International of Washington, Inc. ( EXPD ) - 29 years

Prediction: 7.5 - 10.4% increase to $1.44 - $1.48.

Actual: 3.0% increase to $1.48.

Forward yield: 1.31%.

The economic slowdown is hitting the logistics and shipping company, resulting in a slowdown in dividend growth.

FactSet Research Systems Inc. ( FDS ) - 25 years

Prediction: 9.6 - 12.4% increase to $3.90 - $4.00.

Actual: 10.1% increase to $3.92.

Forward yield: 0.98%.

FactSet continues its dividend growth rate of around 10%, powered by double-digit earnings growth.

Leggett & Platt, Incorporated ( LEG ) - 51 years

Prediction: 0 - 2.3% increase to $1.76 - $1.80.

Actual: 4.5% increase to $1.84.

Forward yield: 5.72%.

Despite a drop in earnings in 2022 and expectations of even lower EPS in 2023, dividend growth accelerated at the furniture manufacturer.

MSA Safety Incorporated ( MSA ) - 52 years

Prediction: 4.3 - 6.5% increase to $1.92 - $1.96.

Actual: 2.2% increase to $1.88.

Forward yield: 1.31%.

The safety products manufacturer continues its history of modest dividend growth.

Northrop Grumman Corporation ( NOC ) - 19 years

Prediction: 7.5 - 9.8% increase to $7.44 - $7.60.

Actual: Deferred to late May.

The defense contractor should announce its next dividend boost when it reports earnings on May 17th.

Pool Corporation ( POOL ) - 12 years

Prediction: 10.0 - 12.0% increase to $4.40 - $4.48.

Actual: 10.0% increase to $4.40.

Forward yield: 1.30%.

While not as rich an increase as last year's, Pool Corporation still rewarded investors with a double-digit boost.

RLI Corp. ( RLI ) - 48 years

Prediction: 3.8% increase to $1.08.

Actual: 3.8% increase to $1.08.

Forward yield: 0.81%.

The insurer announced its usual 4-cent annual dividend increase after issuing a $7 special dividend in November.

Tetra Tech, Inc. ( TTEK ) - 9 years

Prediction: 13.0 - 17.4% increase to $1.04 - $1.08.

Actual: 13.0% increase to $1.04.

Forward yield: 0.71%.

Despite slowing dividend growth, Tetra Tech continues to reward investors with double-digit dividend boosts.

UGI Corporation ( UGI ) - 35 years

Prediction: 2.8 - 5.6% increase to $1.48 - $1.52.

Actual: 4.2% increase to $1.50.

Forward yield: 5.22%.

The natural gas utility's increase is consistent with its stated objective of 4% dividend growth.

Union Pacific Corporation ( UNP ) - 16 years

Prediction: 3.8 - 6.2% increase to $5.40 - $5.52.

Actual: Deferred to late May.

The transportation company should announce its latest dividend increase in the third week of May.

Predictions for Dividend Increases for the Second Half of May

There are 10 long-term dividend growth companies I expect to announce their annual increases in the second half of May. First, here are my predictions for two featured companies:

Lowe's Companies, Inc. ( LOW ) - 58 years

The home improvement retailer has built an outstanding dividend growth record in its nearly six-decade history of boosting its payout. For example, Lowe's has compounded its dividend by 20% annually over the last decade, culminating in a 31% boost last year. Will Lowe's be able to keep up the growth rate? I think so - although the company is expecting sales to be flat in 2023, EPS is expected to be up between 33% and 38%, which should drive a good dividend increase.

Adding to the upward pressure on Lowe's next dividend increase is the company's payout ratio below 30%, leaving room for a good increase. Lowe's also has a history of using free cash flow for share buybacks. Since 2018, the company has repurchased more than a quarter of all outstanding shares, reducing the share count from 811 million in 2018 to 602 million this year. But even using free cash for share repurchases increases the chance for a larger dividend, as the total amount of cash used for dividend payments is reduced over a smaller number of shares.

So what does this mean for this year's increase? When earnings fell last year, Lowe's still managed a 31% boost. Despite earnings growth returning this year, I don't expect the increase to be much larger and, in fact, I expect Lowe's dividend boost this year to be in the mid-to-high 20% range.

Prediction: 23.8 - 28.6% increase to $5.20 - $5.40.

Predicted Forward Yield: 2.56 - 2.66%.

Medtronic plc ( MDT ) - 43 years

The medical devices company rewarded investors with an 8% dividend increase last year. However, investors should temper their expectations this year. Following 26% EPS growth in fiscal 2022 (which ended April 29, 2022), Medtronic is expecting a drop in EPS, mostly due to currency effects. The strong dollar is hitting this formerly American - now Irish - company hard. Excluding currency effects, adjusted EPS would be flat, with increases in the Cardiovascular and Neuroscience Portfolios offsetting decreases in the Medical Surgical and Diabetes Portfolios. Include the effects of the strong dollar and adjusted EPS is expected to be down nearly 5%.

Medtronic's debt is not onerous and its payout ratio, at 50%, is not terribly high. But the drop in EPS will cause headwinds to a large dividend boost this year, and Medtronic will be hard-pressed to meet its 5-year average of 8%. Investors can expect a boost in the mid-single digit percentages.

Prediction: 4.4 - 7.4% increase to $2.84 - $2.92.

Predicted Forward Yield: 3.20 - 3.29%.

Here are my predictions for the 8 other companies which should announce annual increases in the second half of the month:

Summary

The dividend increases were mixed in the first two weeks of May. On the positive side, Pool Corporation and Tetra Tech - who both traditionally announce 10%+ payout increases - continued their pattern of double-digit boosts. On the downside, medical company Cardinal Health - which is struggling with growing earnings - kept its growth streak alive with a 1% dividend boost. But most increases were in the mid-single digit range, with widely-held Apple beginning its 2nd decade of dividend growth with a 4.3% increase.

Things will slow down in the second half of the month as we head towards Memorial Day and the start of the summer season. My biggest expectation is a 20%+ dividend increase from Lowe's, followed by 10%+ increases from human resources and staffing company Insperity, HVAC company Lennox International, and regional bank TowneBank. Medical device company Medtronic and auto servicing company Monro should reward investors with boosts in the mid-single digits. And Flowers Foods is at risk of skipping or deferring its dividend increase this year as earnings continue to be pressured.

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