Slowing Dividend Growth in 2019 and Why It Is Not All Doom and Gloom

Once again, as I sip on a delicious, warm cup of coffee, I have found myself shaking my head.  This time, the disappointment was at the hands of Pepsico (PEP).  Their recent 3% dividend increase left a lot to be desired.  It is significantly lower than last year and their 5-year average dividend growth rate.   But Pepsi wasn’t the only company that has made me feel this way in 2019.  We’re noticing a frustrating trend in 2019….slowing dividend growth.

WHy I’ve Felt Disappointed now that there is slowing dividend growth

Let’s start with what is fueling this feeling of disappointment.  In 2018, dividend increases and share buybacks were awesome.  The growth was bolstered by the new tax reform legislation, growing earnings, and a positive economic environment.   We felt the impact of tax reform immediately.  Every day for the first few months of 2018, it seemed like Lanny and I were sharing excitement and the news of another company announcing a surprisingly large dividend increase.

This emotion was captured In our “Expected Dividend Increase” series.  In each article, we summarize the previous month’s dividend increases and the expected increases for the next month.  In the first few months, we noticed and commented on a wave of surprise, large dividend increases in 2018.   January 2018 saw companies like Aflac, Intel, 3M, and Norfolk-Southern, offer surprisingly large dividend increases and February 2018 saw the same from Pepsi, T.Rowe Price, UPS, and TJMaxx.  Of course there are others that aren’t included, but you get the point!

Here is a chart summarizing a sample of dividend increases announced in 2019 compared to 2018.  This should help explain why I am feeling disappointed.

should I really have been surprised about the slowing dividend growth?

I should first start by saying I am not naive.  I understand that there was going to be pullback from 2018’s insane dividend increases.  Double-digit percent dividend increases cannot be the norm; otherwise everyone would be a dividend growth investor.  Despite knowing in the back of my mind, I still can’t help but feel disappointed with each announcement.

The warning signs were there at the end of 2018.  The market declined due to rising interest rates, lower earnings as a result of increased operating costs, and 2019 guidance cuts.  Most of us follow the market regularly, so shouldn’t be surprising.  In fact, in an article published by Barron’s in December 2018, the author noted this trend based on a report published by Goldman Sachs.  The S&P 500’s average dividend growth rate was 9% in 2018 and it is expected to decrease to approximately 6% in 2018, citing a deceleration in earnings.

Here are some example earnings releases’ from companies that I own discussing their 2019 outlook.  Each highlights how earnings or sales outlooks are negatively impacted by the economic environment. Thus, corroborating the trend and expectations we noticed and cited in the Barron’s article. I included a source link to each earnings release for each as well if you would like to learn more.

  • Pepsi – “A decline in core constant currency EPS of approximately 1 percent, which incorporates lapping a number of 2018 strategic asset-sale and refranchising gains, the expected increased core effective tax rate, and expected 2019 incremental investments to strengthen the business.”
  • Aflac – “Aflac Japan, our largest earnings contributor, converted from a branch to a subsidiary at the beginning of April and generated strong financial performance. As we enter a new year, we expect to see a slight decline in Aflac Japan’s total earned premium in 2019 mainly due to limited-pay policies reaching paid-up status. We expect net earned premium of third sector & first sector protection products combined to grow in the 1% to 2% range. Sales are expected to decline in the low-to-mid single digits coming off the highest third sector sales year in recent history, which included the very successful launch of our new cancer insurance products.”  In fairness to the company, Aflac also stated that they expect US sales to continue “solid results” & deliver a 2%-3% increase.
  • 3M Company – “Full-year 2019 earnings are now expected to be in the range of $10.45 to $10.90 per share, including a $0.10 per share earnings headwind from the M*Modal acquisition, versus a prior expectation of $10.60 to $11.05 per share. 3M also expanded its full-year organic local-currency growth expectation to a range of 1 to 4 percent versus 2 to 4 percent, previously.”

It is not all doom and gloom

But never fear, I’m not running for the doors and selling all of my dividend growth stocks tomorrow.  Due to one chart and one key observation from a fast-food restaurant, there is some hope.

First, while the referenced Barron’s article mentioned that dividend growth was slowing,  I was able to obtain a chart from showing the dividend growth rate of the S&P 500 from 1990 going forward.

Let’s focus on the years 2013 going forward, as this provided some true perspective for me.  I am relatively new to the dividend growth investing game.  2013 is when Lanny helped uncover my true passion for the topic.  Since the graph above does not easily display the annual dividend growth rate, I also used the website’s table format disclosing the annual dividend growth rate.

Looking at the the graph/table above, I realized that dividend growth was actually slowing for several years before 2018.  Thus, in 2018, I was so excited to see the increasing dividend growth rates that it slightly skewed my perspective.  Of course double-digit dividend growth will seem amazing after two years of average growth.

Further, the Barron’s article foretasted dividend growth of 6%.  When compared to the chart, this amount is not a historically low number.  6% is much lower than the growth rates realized in 2018, no doubt there;  however, it isn’t a negative dividend growth environment.  I’m still not happy about the slowing dividend growth rates; but I at least feel a little better about this when comparing forecasted 2019 to historical dividend growth rates.

2013 was the peak of dividend growth.  Each year afterwards, dividend growth was slowing down.  The lowest recorded annual dividend growth rate was in 2016 per, at 5.33%.

Second,  I mentioned that a fast-food restaurant was also the reason I’m feeling optimistic about dividend growth.  Why is that?  On the same day that Pepsi announced their small dividend increase, The Wendy’s Company also announced a 17.6% dividend increase.   Yes, the same Wendy’s that serves delicious, never-frozen square cheeseburgers.  The same Wendy’s that doesn’t cut corners (Okay – I was a HUGE Wendy’s fan growing up and it is still my favorite fast food restaurant to date).  In their last earnings release, the company issued strong 2018 outlook that projected strong earnings growth compared to last year (44%-49% increase) and a strong increase in free cash flow (34%-38%).

This recent dividend increase validated to me that not every company is slowing down their dividend growth.  If a company realizes strong growth in earnings/cash flow, they will continue to increase their dividend by strong percentages.  This is a trend we have noticed in the banking sector and railroad sector as well.   To me, this is a great sign.  Each company is evaluating their 2019 outlook and acting based on their own situation.  There will still be opportunities to purchase companies with strong dividend growth or realize strong dividend growth in our holdings.  It just may take some more digging than previous years.


Man I love being a dividend growth investor.   Each year presents great opportunities to learn new things about this craft.   The reason we pick companies that have a long-term history of dividend growth is because they continue to grow their dividend during various economic cycles.  Sure, the slowing dividend growth is frustrating.  But the companies we invest in are still managing to grow their dividend. I’m thankful for that (Quick disclaimer: a dividend, or an increasing dividend, is never guaranteed. Further, not every company has increased their dividend in our portfolios).

As this article has shown me, there will be high growth years and there will be slow growth years.  But at least in this slow growth environment, our holdings are still increasing their dividend and there are still examples of companies offering high dividend growth rates if their earnings are supporting it.  So all hope is not lost in 2019.  We are in for a CRAZY ten more months.


17 thoughts on “Slowing Dividend Growth in 2019 and Why It Is Not All Doom and Gloom

  1. Nice review and excellent perspective supported by facts and data. Us diehard DGIer’s are long term thinkers by nature. One year usually won’t make or break us. We have had a nice run since the depths of the last recession. Let’s keep moving the needle in 2019 regardless of the environment. And yes, you know I love your monthly article on upcoming dividend increases. But now I am hungry for a Wendy’s burger. I don’t know if you have Culvers in Cleveland, but I like their burgers even more than Wendy’s. Tom

    • Thank you very much Tom. I appreciate it. I agree, one year won’t make/break it. But man, that doesn’t mean it can’t be frustrating watching your dividend growth rate moving down. I had Culvers for the first time last year and loved it. There is one that opened up 20 minutes away from my house. I haven’t gone here yet, but I’m sure it is just a matter of time. Thanks again for the comment!


  2. Hi Bert
    I made the same experience.I‘ve some holdings in my portfolio showing slowing EPS- and dividend growth for some years, for instance Nestlé and Swiss pharma giants Roche and Novartis. I put them in the same league like Coca Cola or PepsiCo. I just love their earning quality but these are maturing businesses. These are stocks I want to hold for decades, and I have a nice YoC. I see these stocks as the backbone of my portfolio, what I want is stability, and their dividends keep growing – at a lower pace but it‘s still climbing. And in addition to my “backbone stocks“, I add some high yield stocks here and there (miners, oil, insurances etc) and some other businesses that grow nicely, putting them into a position to hike their dividends substantially (e.g. LVMH etc). Overall, on average, I am stilk expecting dividend hikes to be in a range of 5 – 7 % despite some core holdings having significantly tapered their dividend growth.

    • Thanks for stopping by and the comment. That range seems in line with the other expectations, but I like how you view your portfolio. Classifying the backbone, lower yielding stocks compared to others.


  3. I’m not worried. Look, a 1%, 2%, or 3% token increase is much better than a GE or KHC slashing or worse, elimination. The reality is that with a diversified portfolio, continued fresh, consistent buying and reinvestment we can still build a growing passive income stream with token raises and even dividend cuts. Stay the course. For those that have been investing for 20, 30, 40 years or more already have seen record high interest rates, boom and bust cycles come and go, inflation/deflation fears, inflated PEs and much, much more. Stay the course.

    • Keith,

      I agree, especially after the Kraft cut. Small, positive increases definitely outweigh a major step back. But your comments why we focus on the long-term and have pursued this strategy. We will make it just fine through the various economic cycles. This may just be a down year in terms of dividend growth.


  4. Indeed we observe slowing dividend growth, especial for mature business that have a long track record of paying dividends. To a certain degree that is not so surprising. Comapanies like KO and PEP are struggling to find organic growth. Additionaly they already distribute a high portion of their free cash flow in form of dividends. PEP has a FCF payout ratio of around 80%, KO’s payout ratio is even higher.
    As long as revenue growth stays flat, we have to expect a low single digit dividend growth in my opinion.

  5. Bert,
    I agree with Keith/Hut above, and your response. Better to gain a little than get kicked in the stomach. It is also important to remember cycles are just that – cyclical. Will we have another recession at some point – yes. Will we enter another period of economic boom after – probably yes (save major disasters). In the mean time, keep paying me more for the same money I gave you the first time. Except you KHC, which the life lesson is avoid anything 3G touches.
    – Gremlin

    • Gremlin,

      Trust me, I’ve learned to place some value in that life lesson and will consider it next time I see the headline “3G investment” in a company I own. Dividend increase cycles will ebb and flow. I’m just frustrated with the one we are in in 2019.


  6. Hey Bert,
    I didn’t realize PEP had already announced, but that’s definitely a disappointing one (by far the lowest since I jumped on board in 2015 with the company. KO’s didn’t surprise me with the 2.56% as their growth engine has been showing some signs of slowing amid the debt, etc., for a few years now.
    As you and others have mentioned in the comments above, it’s still nice to get a small raise when you take a look around at a huge hit like KHC (I somehow dodged this one). Heinz was the first company I ever requested an annual report from (I called them on the telephone to request it) but never pulled the trigger on them.
    Take care,

    • Ryan,

      Yes, the PEP announcement was particularly disappointing. That’s a good point, noting how it was buried in the PR. I probably would bury that as well. I can’t believe you had to call to request an annual report! It is crazy how easily we can access this information these days and how quickly we can make investment decisions based on it.


  7. I think in a lot of cases, slowing dividend growth is a good corporate decision. Especially true if they use the extra money to pay down debt instead of for more M&A.

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