Dividend increases are the name of the game. We love them, we monitor them, and are constantly watching each stock in our portfolio and watchlist for news about them. Why? The impact of increases on your dividend income streak is real and is pivotal for your journey to financial freedom. It only makes sense that each month, we write about the expected dividend increases and review the actual announcements from the last month. Here is the next installment of the “Expected dividend increases” segment!
Dividend News & Analysis – May
In April, the Dividend Aristocrats flexed their muscles. Procter & Gamble and Johnson & Johnson reminded us why they are two of our five foundation dividend stocks after announcing strong dividend increases. IBM was welcomed to the Dividend Aristocrat family as well, by announcing their 25th annual dividend increase. While retail and oil companies were cutting their dividend, these bright spots provided us with some positivity, and momentum, for our dividend stock portfolios.
May had some strong moments as well; however, there were some dark spots as I will discuss. The trend of April continued. Dividend Aristocrats in industries that were not as badly impacted by the pandemic continue to increase their dividend right on schedule. Showing some kind of order and trend is very encouraging and appreciated for us. As you’ll see in June, the expected dividend increases are all in strong performing sectors.
That was the positive. Now, of course, there was a negative dividend trend bubbling up as well. No, I am not talking about dividend cuts. Dividend cuts have been a forgone conclusion in some sectors. I’m actually more shocked if a retail company does not cut their dividend as opposed to increase. I am talking about companies taking a preventative approach and cutting their dividend too soon, by too much, or not increasing their dividend all together.
Times are difficult and forecasting revenues and cash flow the year is a difficult task. However, there are some companies that are aggressively reducing their payouts, or postponing the dividend increase, until future quarters when it may not be necessary. Let’s talk about Westrock Company, for example. The company announced a 57% dividend cut due to uncertain economic times and under the disguise of improving their balance sheet. Upon further review, it turns out the company’s debt to service through 2021 are actually quite low and the company’s other COVID-19 responses were sufficient to cover the debt to service.
The dividend cut was not necessary, especially by 57%, to improve their balance sheet today or even next year. It was extremely frustrating as an investor to receive a large dividend cut that may not have been necessary. The article will later highlight one example of a company that announced strong earnings during the month but did not increase their dividend as expected. On top of it, the company is a Dividend Aristocrat!
After another month of reading, assessing, and learning from the economic impact of the pandemic, I am happy that we have enhanced our investing strategies to focus on quality dividend stocks. As a result of dividend cuts, I am taking a closer look at a company’s balance sheet to ensure they don’t have too much debt before purchasing. We are also doing our best to publish articles to help readers navigate these tough investment times. We recently have published articles about industries built to perform well during the pandemic and 4 strategies for weathering the pandemic. Ultimately, we are all going to come out as better investors as a result of this.
Last, but definitely not least, I saw something for the first time this month as an investor.. Let’s just say it was not a good thing. Aaron Rodgers and State Farm coined the “Discount Double Check” as an insurance promotion. It looks like Occidental Petroleum is trying to coin the term “Double Dividend Cut.” At the end of the month, I received a text from lanny with three letters…”OXY.” Surely, after the company cut their dividend once, they wouldn’t dare do it again, right? WRONG.
Occidental Petroleum cut their dividend for the second time in 2020, dealing an even larger blow to shareholders. There are so many questions to be answered here. But it blows my mind that the company didn’t correct the dividend adequately a few months ago so that they wouldn’t have to cut it again. Further, the price of oil rebounded quite well in May. This adds even more confusion since the company’s top line is getting some relief. Management definitely has some explaining to do here.
Dividend Increases in May 2020 – Actual
Before looking ahead to the June, let’s look back at the projected dividend increases in May from last month’s article to see if the companies delivered:
Company #1: Caterpillar (CAT) – The company did not announce their dividend increase in May. Historically they have also increased in June in the past. I’ll keep an eye on this one and update the article if they announce in the first week of June. If it is later, I’ll add them to next month’s article.
Actual Dividend Increase – N/A
Company #2: Chubb Limited (CB) – Now this one was very surprising for me. Chubb had consistently increased their dividend by $.02 per share annually. Based on how this year has been going, I predicted that Chubb would maintain their consistent $.02 per share streak. Surely, Chubb wouldn’t surprise us all and announced a larger dividend increase in the middle of a pandemic, right?! Not so fast my friends, as the great Lee Corso would say. Chubb actually announced a $.03 per share increase in their quarterly dividend. Congratulations to all the CB shareholders out there!
Actual Dividend Increase – 4%
Greater than Last Year? – Yes
Company #3: Leggett & Platt, Incorporated (LEG) – Last month I stated the dividend increase was iffy. At the beginning of May, the company announced the Board of Directors were going to evaluate the dividend and make an announcement at a later date. At that point, I was just hoping that the company would maintain their dividend and not cut it. Luckily, cooler heads eventually prevailed and the company decided to maintain their current dividend. It wasn’t a dividend increase, but my expectations for one sailed a long time ago.
Actual Dividend Increase – N/A – No dividend increase
Company #4: Cardinal Health (CAH) – Cardinal Health with maintain their Dividend Aristocrat status. However, they did so in unspectacular fashion, as the company announced a 1% dividend increase this year. Lately, Cardinal Health’s dividend increases have been less than stellar and nothing has changed in 2020. The company delivers medical devices and supplies. It’ll be interesting to see their results for the rest of the year and how that could hopefully translate into a larger dividend increase in 2021.
Actual Dividend Increase – 1%
Greater than Last Year? – No, in line with last year
Company #5: Lowes Corporation (LOW) – Well well well, now this is interesting. Lowe’s announced strong quarterly earnings in the middle of the month. Dividend increases during a pandemic are not guaranteed. I understand that. However, after a strong earnings report, my expectations for any dividend increase were heightened. Then, on the last day of the month, Lowe’s quietly announced that the company was maintaining their dividend. Bummer! It looks like I got my hopes up for no reason. Let’s keep an eye on Lowe’s in subsequent quarters for an increase. I doubt the company wants to lose their Dividend Aristocrat status.
Actual Dividend Increase – N/A – No dividend increase announced
Company #6: The Clorox Co (CLX) – Clorox announced a solid dividend increase in the current economic environment. Clorox is a company in an industry that is set to benefit from the pandemic. That makes perfect sense, given their strength in cleaning products and disinfectants. While the increase wasn’t as strong as last year, it is a nice victory for shareholders.
Actual Dividend Increase – 5%
Greater than Last Year? – No, CLX announced a 9.6% dividend increase last year
Bonus Company #1: Medtronic PLC (MDT) – Here is a nice bonus dividend increase for us. Medtronic typically announces their dividend increase in June. However, on May 20th, Medtronics announced a 7.4% increase in their dividend. That is a breadth of positive dividend news during a month of dark news. The dividend streak continues for this Dividend Aristocrat!
Last year’s dividend increase – 7.4%
Greater than Last Year? – In line, MDT announced a 8.0% dividend increase last year
Dividend Increases in June 2020 – Expected
Now, let’s get to the fun part. After a mixed May, let’s see what companies are expected to increase their dividend in June:
Company #1: Kroger Company (KR) – Kroger is a company that has performed very well during the pandemic. That is not surprising given the industry the company operates in. Grocery stores are essential, and always will be, as consumers still need to purchase food to eat while stuck at home. In fact, consumers are purchasing more food as their ability to eat out as frequently was impaired. I’m not expecting a strong dividend increase here; however, I would be shocked if the company didn’t announce one based on their performance.
Last year’s dividend increase – 14.3%
Five-year average DGR – 12.3%
Expected timing of Dividend Increase Announcement – End of the month
Company #2: Target Corp. (TGT) – Similar to Kroger, Target is another company that has performed well over the last few months. Personally, my wife and I have loved our Target experience since the pandemic started. Ordering items and getting them quickly (by shipping or store pickup) is easier than ever. Which is critical for us since we order all of our diapers and many baby products from there. We are very impressed with their transformation over the last few years. This Dividend Aristocrat should maintain their dividend increase streak in June.
Last year’s dividend increase – 3.2%
Five-year average DGR – 4.90%
Expected timing of Dividend Increase Announcement – Middle of the month
Company #3: Starbucks Corp (SBUX) – Here is yet another interesting company to consider during the pandemic. When I did leave the house and pass a Starbucks, I noticed there is always a line wrapped around the building. Sure, revenues were lost because the coffee shops weren’t open. However, it was encouraging to see that people were still lining up to purchase their Starbucks. This company’s brand loyalty is absolutely insane. Predicting the size of the dividend increase is difficult. Remember, Starbucks’ operations have been impacted in China and the U.S during the pandemic. I am not going to project a dividend increase anywhere close to last year. But like KR and TGT, I am still expecting a small increase for shareholders. Time will tell with Starbucks.
Last year’s dividend increase – 13.9%
Five-year average DGR – 21.3%
Expected timing of Dividend Increase Announcement – Beginning of the month
June will be a quite month in terms of dividend increases. It is exciting that all three companies are operating in industries that are performing well during the pandemic. It is my expectation that each of these companies are going to increase their dividend this month. Maybe I am being too optimistic in this current environment, or maybe not. Let’s see if this market rebound can hold strong in June as the economy begins to gradually reopen. The good news is that OXY’s dividend is now only $.01 per share. There isn’t too much room for the company to cut it for a third time in June!
What dividend increases are you expecting in June and what dividend increases did you receive in May? What are your thoughts about the market and company’s taking preventative dividend cuts? Do you have any thoughts or insights about Occidental Petroleum?