One quarter is almost in the books. Lanny and I had quite the active month and added some nice dividend income to our portfolios, as Lanny purchased CAT (twice) and HCP and swapped LO for PM last week while I added four new stocks to my portfolio and re-upped my position in one tobacco stock (I’m not spoiling the surprise completely). As I said, a crazy month for us. While we were active and many companies paid dividends in March, it was a relatively quiet for Dividend Aristocrats as only a few were set to announce increases last month. Will that change in April? Did the companies follow through with their expected dividend increases last month? Let’s find out!
Dividend Increases in March
As I mentioned, March is a relatively quiet month for Dividend Aristocrats expecting to announce a dividend increase. After a record eight companies announced an increase in February, only two were slotted to announce an increase in March. Let’s see if the two companies followed through.
- Air Products & Chemicals Inc (APD)– As discussed last month, APD had the tools to announce a large dividend increase or share buyback program, as the company has a low payout ratio, a 10% average dividend growth over the last three years, and plenty of cash on hand. Did they follow through? In short, I was a little ambitious with my projections and the company’s announcement did not meet my lofty expectations. Once again showing that no matter how much information you have at your disposal, you can never truly know what management has up their sleeves. In March, APD increased their quarterly dividend $.04/share, from $.77/share to $.81/share, a 5.2% increase. This is below their recent average increase of >9%. While the increase was disappointing, the amount still outpaces inflation so investors will not lose any purchasing power.
- Colgate-Palmolive (CL)- As the readers of this blog probably know, I love consumer stocks. My love was validated this week with the exciting merger announcement between Kraft and Heinz. CL fits the mold of a stock that I would love to own and I will always be watching the stock to buy on a large dip. Prior to this announcement, CL has a three-year average dividend increase of 7.5% and announced a large buyback program last year. This year, CL announced another dividend increase below their average, increasing their quarterly dividend $.02/share from $.36/share to $.38/share, or 5.5%. Again, below the average but above inflation.
Expected Dividend Increases in April
Last month had some disappointing announcements, as both companies announced increases below their average. As we turn the calendar, we are expecting some heavy-weight dividend growth stocks to announce dividend increases this month. I would be shocked if every dividend investor does not own one of the companies listed here, so please let me know if you don’t. Let’s take a look ahead and see what is in store for the month to come.
- Exxon Mobil Corp. (XOM) – This is probably going to be the most interesting story of the month, at least the most interesting story of the stocks listed in this article. As turbulent as the oil market has been over the last several months, we do not know the true impact lower oil prices will have on the major oil companies as the companies have not released earnings over a full quarter of low prices. As first quarter earnings are released, we will get a much clearer picture of the impact of the current oil environment and how it will continue to impact companies in the long-term. The big wild card is what will Exxon do with their dividend, as I believe that will be telling of the current environment? After all, they are a Dividend Aristocrat that has increased their dividend for 32 consecutive years with an impressive average three-year dividend of 13.78%; this includes the Great Recession, which caused many great dividend payers to snap their dividend increase streak. For companies on this list, it takes a major event to cause them to stop increasing their dividend and fall off of the list, which is why I believe this month will be so telling for Exxon and other oil companies. Will the decrease in oil price have such a large long-term financial impact that it will cause Exxon to forgo increasing their dividend to preserve the long-term free cash flow? Who knows, but we will sure find out.
- Johnson & Johnson (JNJ)- JNJ is a staple dividend growth stock and is a company that I will one day own. I consider it one of those stocks that I am willing to pay a premium for, as the company has solid financials, a great product portfolio, and a great dividend track record. I put this in the same class as I do PG. Currently, JNJ sports a 2.79% and has a three-year average dividend increase of 7.09%. Last summer, JNJ announced a $5 billion share buyback program, which we know is another way to provide value to dividend investors. The company has a rock solid balance sheet and a payout ratio of 36.9%; thus, I do not see any reason why the company cannot at least meet their three-year average.
- PPG Industries (PPG)– PPG is a company I have not followed closely. But being from Cleveland, I am pretty familiar with one of their competitors: Sherwin Williams. The specialty chemicals company is a low yield dividend growth stock (~1.2%) with plenty of room to grow its dividend, (payout ratio = 17.3%), and the means to continue to increase its dividend (>8 cash/share). PPG has a three-year average dividend increase of 5.6%; however, this total is skewed by the 9.8% increase last year as the two prior years increases were only ~3.5%. This is a little shocking to me, as typically low yielding stocks have higher growth rates. We will see if management reverts to the three-year average this year or announces a larger increase more in line with last year’s increase.
- Procter & Gamble (PG)– As I said, this month has some heavyweight dividend stocks expected to announce an increase. PG is one of my favorite stocks in my portfolio, as I know it will provide me with steady dividend increases and appreciation over a long period of time. The company has a strong brand that provides management flexibility to sell a strong product line or complete a spin-off, if shareholder value is needed. For these reasons, we believe it is one of the best foundation stocks for any dividend growth investor’s portfolio. Over the last three years, PG has averaged a dividend increase of just over 7%. With a payout ratio around 74%, I do not see any reason why management will not have an increase around the three-year average. My guess is that the increase will fall between 6.5% and 7.5%.
There are some great companies set to increase their dividend this month. In addition to the Aristocrats, Lanny and I are set to receive a dividend increase from IBM, which we both have bought multiple times over the last year. We are watching that announcement closely as we have some pretty lofty expectations for Big Blue.
Do you own any of the four Aristocrats expected to announce an increase this month? Which non-Dividend Aristocrats are set to make an announcement for you? How did your March fare? Any consumer stock recommendations to complement my position in PG and KRFT?
-Bert