Dividend increases are the name of the game. We invest in dividend growth stocks to earn a GROWING dividend income stream. That is why the two of our are constantly monitoring our portfolios, and potential investments, to see which companies will increase their dividend. Every month, we share some dividend news and discuss the major dividend announcements that are expected to come. Read more to see the expected dividend increases in July.

Dividend News & Analysis – June 2020

June was interesting. Despite the economies starting to reopen, the stock market was mixed. The market did not have the same endless, green trajectory similar to April and May. A few weeks were positive and a few were negative. Towards the end of the month, coronavirus cases began to spike once again. Still, despite that, the market trended positive for the month. The next few weeks will be critical to assess the long-term ramifications this spike may have on the nation, economy, and the stock market for the rest of the year.

From a dividend investing standpoint, the potential ramifications will be huge. We already know the severity of the dividend cuts that occurred in March, April, and May. The cuts have been devesating for our, and countless others, dividend income. If things turn sour quickly in July, we could experience another wave of dividend cuts.

Read: Dividend Cuts – The Impact on Lanny’s Portfolio

The most fascinating dividend story came at the end of the month. The Fed released the results of annual bank stress tests. Annually, the largest banks are required to perform stress tests to assess the strength of the bank’s capital position during various simulated economic environments.  Unsurprisingly, this year, the focus of the stress tests were to understand the resiliance of the largest bank’s capital position assuming different coronavirus scenarios. Scenarios could range from fast recoveries, slow recoveries, V-shaped recoveries, W-shaped recoveries, and many others. The banks stressed their balance sheet and submitted their results to the Fed.

The Fed dropped the hammer and placed restrictions on share repurchases and dividends for banks after reviewing the results of the stress test. For the third quarter, banks are not allowed to repurchase their shares. Further, there dividend is capped at their current level. There will not be any large dividend increases by banks in July 2020 like there were in July 2019.  The Fed also stated that dividend payments will be based on formula derived from the trailing 12 months earnings.

Read: What is a Dividend?

Now that will be interesting to see. Remeber, banks performed very well at the end of 2019 and the beginning of 2020. The cap will start high and eventually lower if earnings are depressed for the next three quarters. The restrictions are tough to read about, especially from a dividend investors perspective. However, after the Great Recession, it is nice to see a proactive, prudent approach is being taken to ensure the strength of the country’s financial sector during uncertain times.

Despite some of the negative news mentioned earlier, there are some positive dividend stories. Companies operating in industries that have benefitted from the pandemic still increased their dividend on schedule, as you will see. This is a huge win for dividend investors. Not all hope is lost in the dividend investing world after all!

On top of the dividend increases, we continue to find opportuntiies to invest despite the market run up. Small purchases have been the name of my investing game in 2020 and I have capitalized. Lanny put together two watch lists for the month highlighting some great, dividend growth stocks. Personally, I know I have purchased a few companies on his list (PFE for example).

Read: Lanny’s Mid-June Dividend Stock Watch List

I also made purchases off of his list. In this instance, I stuck to the basics and purchased 2 of our Top 5 Foundation Dividend Stocks: AT&T and Consolidated Edison. Both companies are quality dividend growth stocks that have paid, and increased, their dividend through good times and bad. Right now, you have to love a QUALITY dividend stock.

Dividend Increases in June 2020 – Actual

Now, let’s get to the fun part! Let’s review the results from last month’s article. Did the companies that were expected to increase their dividend follow through?

Company #1: Kroger Company (KR) –  Kroger delivered strong, positive dividend news to end the month. It was exactly what we needed. Honestly, going into the increase, I was not exactly sure what to expect. Their dividend growth rate has been strong (12.2% 5-Year Average DGR); Further, Kroger operates in an industry that has benefitted from the pandemic. I was expecting a decent dividend increase.  However, I wasn’t expecting an increase close to their average DGR during the pandemic.

Actual Dividend Increase –  12.5%

Greater than Last Year –  No (just slightly though)

Read: Industries Built for the Pandemic 

Company #2: Target Corp. (TGT) –  This Dividend Aristocrat continued their trend of announcing $.02 per share increases in their quarterly dividend. A 3% dividend increase wouldn’t be exciting in most years. However, in the middle of a pandemic that has caused many companies to cut their dividend, I am not going to complain. Target is one of my favorite holdings and we really enjoy the shopping experience at the store. They have been a gamechanger for purchasing baby supplies for our daughter. Naturally, we were excited to think that some of our diaper and baby wipe purchases contributed to this dividend increase!

Actual Dividend Increase – 3.0%

Greater than Last Year – No (Just slightly though).

Company #3: Starbucks Corp (SBUX) –  This is an interesting case. Starbucks brews a great cup of coffee and has a very strong, loyal customer base. There is one by my house and there is always a long line. Even when the cafe was closed, cars were still wrapped around the drive through. Naturally, with seeing long lines, I was pretty excited to receive a dividend increase this month as a shareholder. The dividend increase never came. Frustrated, I reviewed the company’s quarterly dividend history only to realize that the company typically announces there dividend increase later in the year.  Basically, I got myself, and all of you, excited for nothing. We will be returning to Starbucks later in 2020!

Company #4: Realty Income (O) – The Monthly Dividend Paying Company strikes once again. Honestly, I am so accostumed to receiving their small quarterly dividend increase that I left them out of last month’s article! I’m sorry fans of Realty.  The company announced a .2% increase in their monthly dividend. This was their 107th consecutive quarterly dividend increase. Just like clockwork.

Dividend Increases in July – Expected

With the actual results behind us, let’s look ahead to the coming month. Here are the expected dividend increases in July.

Company #1: Stanley Black & Decker (SWK) – The first company name is an iconic, American brand name. When you are walking through home improvement stores, it is impossible not to pass one of their tools and products.  Not only is Stanley Black and Decker a Dividend Aristocrat; they are also a Dividend King. SWK has increased their dividend for 52 consecutive years. Hopefully, in July, it will become 53.  SWK’s dividend yield is in line with the markets and their average dividend growth rate is in the mid to high single digit range. My expectation is that the company announces an increase below their 5-year average dividend growth rate.

Last year’s dividend increase –  4.5%

Five-year average DGR –  5.8%

Expected timing of Dividend Increase Announcement –  Middle of the month

Company #2: Walgreens Boots Alliance (WBA) – It’ll be very interesting to see what this major drug store does. As a major healthcare centered company, WBA has played a unique role in the COVID-19 pandemic. Their services and distribution of drugs is still essential, despite store closures. So they have had to continue operating despite some limitations. Their stock price over the last quarter does not reflect that. The question is, how will this impact their expected dividend increase?

Last year’s dividend increase –  4.1%

Five-year average DGR –  6.4%

Expected timing of Dividend Increase Announcement –  Beginning of the month

Company #3: J.M. Smuckers (SJM) – One of my favorite companies. Maybe it is because they are headquartered in Northeast Ohio. Maybe it is because I love their products and strong brand names. Regardless, Smuckers holds a place near and dear to my heart. The company announced a less than average dividend increase in 2019 after closing their acquisition of Ainsworth Pet Nutrition. I sincerely doubt the company’s increase is much larger in 2020 as a result of the pandemic. Despite their strong, consumer food brands that were set to benefit from consumer stockpiling, the trends all point to a small dividend increase in 2020.

Last year’s dividend increase –  3.5%

Five-year average DGR –  6.6%

Expected timing of Dividend Increase Announcement –  End of the month

Company #4:  Norfolk Southern Corporation (NSC) – I cannot wait for this dividend increase. Why? In my opinion, it is going to tell us a lot. Norfolk Southern began increasing their dividend once again in 2017 after a brief hiatus. From 2017-2019, the company increased their dividend semi-annually in January and July.  However, NSC skipped over their January dividend increase.  They are already behind in 2020 compared to 2019. Now, here is the big question? What will NSC do this month? If they do not increase their dividend, what does that say about the company, their customers, and the overall state of the economy?  That’s why it will be so fascinating!

Last year’s dividend increases –  Two (7.5% and 9.3%).

Five-year average DGR –  10.5%

Expected timing of Dividend Increase Announcement –  End of the month

Company #5: Kellogg Co (K) – Smuckers isn’t the only consumer staple company expected to increase their dividend in July.  Step on up to the plate Kellogg’s.  Kellogg’s dividend growth has been frustratingly low over the last few years. Their dividend increase last year was a pathetic $.01 per share. That was a whopping 1.7% increase, which isn’t even greater than inflation. The company has benefitted from the pandemic due to their strong brands and the trend of stockpiling. It’ll be interesting to see if their dividend increase is greater than last year.

Last year’s dividend increase –  1.7%

Five-year average DGR –  3.1%

Expected timing of Dividend Increase Announcement –  End of the month

Company #6: Cummins, Inc. (CMI) –  Cummins has been on a dividend tear the last few years. Their average dividend growth rate is very strong. Much like their products, the company has been firing on all cylanders.  Sure, the pandemic will have an impact on the company’s dividend increase in 2020. However, Cummins was actively working with partners to help provide masks and respirators. We haven’t seen very many earnings releases that disclose the financial impact of these actions, since the quarter hasn’t closed.  CMI’s dividend increase may be the first clue to figuring it out!

Last year’s dividend increase –  15%

Five-year average DGR –  11.2%

Expected timing of Dividend Increase Announcement –  Beginning of the month

Summary

Kroger provided us with some strong momentum heading into the second half of the year. Now, let’s see if the companies above can keep the ball moving forward. Let’s remain positive, safe, healthy, and continue doing what we can to help make this a safe recovery.  In the meantime, let’s continue focusing on strong, high quality dividend growth stocks to invest in and monitor.  The six potential dividend increases in July are all quality dividend stocks. It will be very exciting to read each earnings release, earnings transcript, and learn more about the impact the coronavirus pandemic is having on dividend growth stocks. Each day is a chance to learn something new! So let’s take advantage of it.

What dividend increases did you receive in June? What dividend increases are you expecting in July? Were your surprised by any of the increases, especially Kroger? Were you disappointed by any companies that didn’t announce an increase, or even, a dividend cut?

Bert