Forecasting Dividend Growth
The start of the year is typically a great time for dividend growth investors with many companies getting off to a fresh start with higher payouts. The first quarter of the year was no exception with 13 of my holdings giving out 14 raises. In total my forward dividends have increased by $67.69 through dividend increases alone.
April looks to be an especially fruitful month with 7 companies slated to announce raises based on the timing of their previous raises and maybe an 8th could join the party. Even better is that some of the financials that I own, Wells Fargo, Bank of America and J.P. Morgan might announce increases as well depending on when their capital allocation plans are approved by the Fed. That's a minimum of 7 and potentially 11 raises that I could get in April alone.
As a dividend growth investor that gets me excited. There's not much that's better in the world of investing than hearing that a company you own wants to give you more money because you own some shares.
Even better is the diversity among these companies. There's 2 consumer good giants, a consumer/health care company, health care real estate company, a technology firm, industrials company and an an oil giant. There's also 1 Dividend Challenger, 3 Dividend Contenders and 3 Dividend Champions.
Since I fully expect dividend increases from 7 companies this month I wanted to take a guess at what the raise will look like. While I don't expect to be 100% right every single forecast it's a fun game to play while I wait for the details.
So who are the raisers to be? (in order of expected increase date)
*All dividend, earnings per share and free cash flow per share values sourced from Morningstar
Unilever (UL) - 8 Year Dividend Growth History
Date of last increase: 4/8/2015 but management has already announced the date of the next dividend announcement as 4/14/16
Unilever operates globally in the consumer goods space and is divided into 4 operating units: Personal Care; Foods; Refreshment; Home Care.
Analysts are expecting 7.1% annual growth in earnings over the next 5 years which should give way to solid dividend growth. However, the payout ratio is creeping up there and it looks like management wants to target a 60% payout ratio. Earnings for 2016, in euros, are forecast to be 1.91 and a 60% payout ratio would correspond to a 1.14 euro dividend which would be less than 2015's payout.
Current Dividend - 0.302 euro quarterly
Low Forecast - 0.312 euro quarterly / 5% growth
High Forecast - 0.320 euro quarterly / 6% growth
Omega Healthcare Investors (OHI) - 14 Year Dividend Growth History
Date of last increase: 1/14/16, corresponding dividend announcement from 2015 is 4/15/15
Omega Healthcare Investors is a real estate investment trust specializing in healthcare facilities, primarily skilled nursing/long term care facilities.
This is the easiest one of the bunch and I fully expect Omega Healthcare Investors to stick with the trend of $0.01 increases each quarter.
Current Dividend - $0.57 quarterly
Forecast - $0.58 quarterly / 1.8% growth from previous quarter (7.4% growth from April 2015 payout
Procter & Gamble Company (PG) - 60 Year Dividend Growth History
Date of last increase: 4/17/15
Procter & Gamble is a giant in the consumer staples that operates in five segments: Beauty, Hair and Personal Care; Grooming; Health Care; Fabric Care and Home Care; and Baby, Feminine and Family Care. They have a number of widely known brands consumers use on a daily basis such as Head & Shoulders, Olay, Gillette, Crest, Tide, Dawn, Febreze, Bounty, Charmin, Pampers and many more.
Analysts are predicting 6% annualized earnings growth over the next 5 years; however the company is going through lots of changes currently selling off several brands to other companies in hopes of refocusing around a core. With the big changes for the company and already high payout ratio I expect Procter & Gamble to keep their streak alive, but with a fairly meager increase this year.
Current Dividend - $0.6629 quarterly
Low Forecast - $0.683 quarterly / 3.0% growth
High Forecast - $0.695 quarterly / 4.8% growth
Johnson & Johnson (JNJ) - 53 Year Dividend Growth History
Date of last increase: 4/23/15
Recent Analysis Here
Johnson & Johnson makes a variety of products in the health care space and operates in 3 segments: Consumer; Pharmaceutical; and Medical Devices. Consumer brands consist of Listerine, Lubriderm, Band-Aid, Neosporin, Tylenol, Benadryl, Sudafed and many more. Johnson & Johnson is one of the three remaining companies with a "AAA" credit rating.
Johnson & Johnson doesn't need much of an introduction and I imagine just about every dividend growth investor owns some shares of this wonderful company. Analysts expect Johnson & Johnson to grow earnings 5.3% per year over the next five years. Management will likely stick with a raise between 6-7%.
Current Dividend - $0.75 quarterly
Low Forecast - $0.795 quarterly / 6.0% growth
High Forecast - $0.80 quarterly / 6.7% growth
United Technologies (UTX) - 22 Year Dividend Growth History
Date of last increase: 2/2/15 although management has typically increased dividends every 5th quarter corresponding dividend announcement from 2015 is 4/27/15
United Technologies operates in the industrial goods/services and defense sector dealing with elevators, escalators, climate control, fire safety products and various aerospace defense support products.
Analysts expect United Technologies to grow earnings by 8.99% per year over the next five years. The payout ratio based off earnings looks solid around 30%; however, the free cash flow payout ratio is quite a bit higher at 54% for 2015.
Current Dividend - $0.64 quarterly
Low Forecast - $0.68 quarterly / 6.3% growth
High Forecast - $0.70 quarterly / 9.4% growth
International Business Machines (IBM) - 20 Year Dividend Growth History
Date of last increase: 4/28/15
IBM provides information technology products and services worldwide including cloud support, hardware, software and the most intriguing, to me at least, "rational software" or Watson.
IBM's struggles are well known with revenue struggling to move higher over the last decade. Much of this is due to IBM's slow move out of their hardware/IT infrastructure services and into faster growing cloud/artificial intelligence services. Analysts expect IBM to grow earnings at 7.25% per year over the next five years. Even with revenue growth stalling and a hefty dividend growth rate the payout ratio is still very manageable in the mid 30% range based off earnings and free cash flow.
IBM's dividend growth is a bit tricky to forecast and I could easily see anywhere from a 7% increase up to a 12% raise.
Current Dividend - $1.30 quarterly
Low Forecast - $1.40 quarterly / 7.7% growth
High Forecast - $1.45 quarterly / 11.5% growth
Exxon Mobil (XOM) - 33 Year Dividend Growth History
Date of last increase: 4/29/15
Recent Analysis Here
Exxon Mobil is a "super major" in the oil field operating in upstream (exploration and production), midstream (pipelines) and downstream (refining and marketing). Exxon Mobil is one of the last three companies with a "AAA" credit rating.
Exxon Mobil is built to prosper during the inevitable downturns that the oil field experiences due to their size and conservative capital allocation plan. The ongoing rout in the price of oil continues to be a drag on companies with large exposure to the upstream side of operations which makes up the bulk of Exxon's earnings. Historically, management has refrained from overly generous dividend growth in the good times in order to continue with dividend growth during the bad times. Analysts expect Exxon Mobil to grow earnings by 13.2% per year over the next 5 years.
Current Dividend - $0.73 quarterly
Low Forecast - $0.76 quarterly / 4.1% growth
High Forecast - $0.78 quarterly / 6.9% growth
Chevron (CVX) - 28 Year Dividend Growth History
Date of last increase: 4/30/14
Chevron is another "super major" in the oil space.
Chevron was likely a bit too generous with dividend growth in the past, although I'm not really complaining too much. I really have no idea if Chevron will return to dividend growth after placing things on hold last year. Luckily their dividend growth streak is still in tact and they actually have until December 2016 payment, late October announcement based on past declarations, to raise the dividend and keep the streak going another year. Analysts expect Chevron to grow earnings by 39.2% per year over the next 5 years.
Given the on going low oil environment I think a $0.01 raise is the best case scenario for Chevron although I expect no raise to be announced this month.
Current Dividend - $1.07 quarterly
Low Forecast - $1.07 quarterly / 0.0% growth
High Forecast - $1.08 quarterly / 0.9% growth
My forecasts are likely to be wrong with some raises coming in lower and others coming in higher, but they represent reasonable guesses as to what April has in store. Whether the actually announcements fall within my ranges or not doesn't matter as long as they do get announced.
*UL dividend converted to USD at current exchange rate of 1.13 euros = $1
Any of my holdings by themselves won't move the needle that much in terms of boosting my income, but the key to the dividend growth investing strategy is the cumulative effect that each company has. So far this year organic dividend growth has grown my forward dividends by $67.69 and the expected raises from April alone could potentially double that!
With 7 companies and potentially more set to boost up my income I can't wait to see how the month plays out. The dividend raises are largely back-loaded so it'll be a busy second half, but that's the kind of busy I like.
Do you own any of these companies? Do you ever forecast expected dividend increases or do you prefer to go the surprise me route? What other companies are you expecting to bump up your pay in April?
Image provided by adamr via FreeDigitalPhotos