Small Dividend Increases from Big Companies This Year

As I sit here with the desire to “crank out” an article before the day starts (going for an 8 minute post) – it dawned on me that this year hasn’t been the “strongest” in terms of dividend increases for large companies that we all share, hold and love.  Some are even dividend aristocrats that increase their dividend year, after year, after year.  Some are big name companies that over the last 5 to 10 years have had large or more than the average dividend growth rates, say between 5 and 15% increases, vs the 0-5% increases from some of the others.  This has been a very different year for dividend investors as we navigate the playing field and start seeing action events from companies on their annual increases, which – we can’t blame them at all, given the facts displayed out below.  Let’s see what I’m talking about so far this year, with 5 examples of companies that haven’t provided that historical or thought of dividend increase year.

The 5 companies to review for no/small dividend increases this year

Procter & Gamble (PG): Where else should we start than a foundation stock that we would have in our portfolio at any time.  Good old Procter & Gamble.  With a historical dividend growth rate of 7% year after year, it was very close to a Johnson & Johnson (JNJ) as a matter of fact, one would always go into the year, thinking – yep, I will receive my 7% dividend increase on top of the average yield of 2.8-3.3% yielder, making this a phenomenal dividend stock to have in your portfolio.  Well, I may say PG’s future does look better, as I performed a stock analysis over this company last week, but this year, they only increased their dividend a small 3%.  Pairing that up with a 3.75% yield, the combined dividend punch is roughly 6.75%, much lower than what it has historically been.  This could be due to a few factors that I could think of – shrinking Earnings Per Share growth, though divestitures I think will help, currency translation impacts, as well as – which falls in line – a higher than normal payout ratio.  I think they will be back in the saddle once dust settles, but definitely on the short end of having a lower than expected increase this year.  I still love you PG, but dang!

Philip Morris International (PM): Next on my list to check out and discuss is our good tobacco friends in PM.  Love them to death, given their high yielding capability (currently over 5%) and better than average historical dividend growth rates.  After I saw Altria or MO provide an over 8.65% increase in their dividend, I thought PM would be a few percent behind them… not the 6.65% behind them that ended up being, as they recently announced a 2% dividend increase this year.  Pairing that up with a currently yield of 5%, that computes to dividend power of around 7%, much lower than it has historically been as well.  Again, why was it smaller this year?  Facing large headwinds with currency translation losses given the strength of the US dollar and thus fighting an also slightly higher payout ratio; this is due to revenue coming from all across the world and then translating into the US dollar… which has been fairly strong, ouch.  I think this improves and that they increased it this year just to give investors the nod and add another “year” to their dividend growth track record.  Let’s get back to the glory days, I’m still in it for the long run PM, don’t you worry (especially after I “fixed” my cigarette problem earlier this year)!

Norfolk Southern (NSC): I hopped on this train quite a few times this year, as I was extremely excited to start transporting dividends to my account.  Now, they historically increase their dividend twice during the year – once at the very beginning and then again in the summer.  Well, the dividend increase came in January at 3.50% and then once July hit, no dividend increase for that 2nd round came.  The train lost a little momentum one could say.  Now, that’s not to say they won’t increase it for the fourth quarter (look out for the 3rd week of October) but the 3.5% increase is MUCH below their recently historical average and the payout ratio is very, very low in my eyes (between 30-40%), leaving room for dividend growth.  Are they bracing for future earnings potential?  I am not too sure on this one on exactly why no increase came.  I am eager to see what October brings and what their dividend policy looks like going forward.

John Deere (DE) = After 11 years of pushing up their dividend, this green tractor company has all of a sudden caused me to think the tractor isn’t as sexy, eh?  All kidding aside, no dividend increase so far this year, after a double digit growth record over the last 5+ years.  They have maintained their dividend since the 3rd quarter last year (6 quarters straight of same dividend) and they also have a very low payout ratio.  I can’t recall the exact reason why there was no increase this year, only that it definitely impacts us investors, for sure!  The yield is at 3%, which is comparable to Norfolk above, but even Norfolk provided a 3.50% growth rate on top of that.  With a 0% growth rate this year, stings a little bit, was unexpected in my eyes, and causes that overall weighted average dividend growth rate to decrease on my portfolio.  Maybe Keith Urban’s new hit song can provide some sort of earning impact to DE…

Shell (RDS) = This isn’t a surprise and shouldn’t shock anyone here.  Oil has gone through an extremely tough time as the price per barrel of oil continues to downtrend, halting earnings growth, freezing up projects or complete removal of them, and this – no increase to the dividend this year, obviously.  Currently they are yielding 7.59%, (not including foreign taxes, etc.), therefore – this doesn’t make it too burden some given the overall purchase power is above all of the one’s currently stated above here.  RDS will have time to heal, as this isn’t the first time oil companies, big one’s at that, have gone through turmoil in their industry.  I guarantee big oil will be back once price fixes itself with supply and demand, there are smart individuals at their companies that will push through the storm and land back on their dividend growing feet.  Not a big concern here, but just one big company that did not provide an increase this year.  It’s okay, I’ll hide under my shell until then…

Conclusion on dividend increases this year

My overall conclusion really is that – we have seen great periods of dividend increases, some from the same companies in the years in the past, and then we have seen a tough period of dividend increases – with examples of this year.  I believe the purpose is to stay the route in this game of the pursuit to financial freedom, stay consistently in the market and purchasing dividend growing companies at better valuations than you had before, some of the great benefits when the market has a downturn.  I know we would have all liked a dividend increase or a higher increase than what was declared = but hey, they know more of a reason why they made their financial decision than we do, and one can only expect/hope that it means providing more shareholder value/wealth down the line.  But damn, we do love our dividends and the growth rate to go with it.  What is everyone else’s thoughts on the matter?  Surprised by any increases this year?  What do you expect going forward?  Appreciate the stop by, the kind words and thoughts on this significant matter.  Talk soon and hope you all have a great weekend!


12 thoughts on “Small Dividend Increases from Big Companies This Year

  1. Agreed. You could also add other names like WMT and T, MCD will also show little growth in my opinion (probably next week).
    However, MO, JNJ, TGT and several others showed some nice growth.
    Diversification is our best friend.

  2. For being a 8 minute post I’m pretty impressed by the gravity. Thanks for sharing Lanny, about your conclusion I couldn’t agree more. Not that I am invested in any of the stated companies (not even PG!) but I think every other aristocrat will eventually have a settled year or two before they can continue growing. I think we do best in just letting the in charge management for said company do what they do best and we will most likely be pleased in the long run.

    Thanks again for sharing
    – mraitn

    • Mraitn,

      Thank you – wanted to get in, drive my message and details and open this really up for discussion. Management has been changing this year from what I have seen, for sure, as well as the total return package back to shareholders has changed quite a bit. It’s been an interesting year, but I’m curious to the finish. I stated in an above reply but McDonald’s is increasing this week, so that could be another news piece for us. Thanks again for coming by, glad you liked it!


  3. The rapid EPS growth that we saw since the great recession has plateau’d in the last year or so and going forward most analysts point to pretty subdued EPS growth. Couple that with the fact most companies are jumping on the bandwagon of share repurchases to return money to shareholders rather than dividends – I think the div growth will be a bit subdued unless the economy expands more.


    • R2R,

      Couldn’t agree more – most companies have evaporated their savings synergies when they have cut or re-racked employees for more output over input and now they still sit on cash to use – aka let’s do share repurchases when we can to keep EPS afloat. I hear ya. We may have good or bad years coming up, but obviously difficult as one thing we could never do – predict the future… only to analyze numbers and see what direction companies could be heading. Stay focused!


  4. Lanny,
    A few companies have had that, perhaps its just bad timing for them to raise at a high percentage. But I’d still like to see a little bit of more cash, especially from DE – since I have them.
    – Gremlin

  5. This is very good point to keep in mind.

    The payout ratios have risen so high for a lot of the companies with long histories of increases that the percentage increases have been declining so several companies. We need to be aware of payout ratios growth as well as dividend growth.

  6. I think, the companies will wait how the China decline works out. This influences the world economy. Europe isn´t growing that much either. On the other hand (I´m living in Germany and working for an US company) the exchange rate €/$ is a disadvantage for American companies. So the American companies are struggling and I believe that they act secure to hold more money in the company without increasing the dividends.

    All the companies above have at present some problems in a different way. PG (I own shares of this company too) doesn´t earn more per share for some time. PM is not a surprise as in Europe less people are smoking and they have to think about the business model for future grow. NSC has problems about lesser coal contracts and we have an energy crisis with new technologies (solar, wind competition to coal) and other than in Europe people in America don´t travel so much with trains. This could be a chance for them if they try to change this. Deere: I´m not so close with that, but farming especially in America with the aridity in some areas isn´t very good for selling tractors. Shell you mentioned it. So there are reasons why they don´t increase the dividend that much.

    But on the other hand it is normal for companies after a growth phase to consolidate, manage some business areas new and after this they will continue to grow. It is a normal process and I think next year we will see the same. We have one advantage for this: The shares are cheaper now and we can get more shares for the same money. One really good bargain for me was to buy this month more BBL as the price declined sharply the last 12 months. Same for a lot of other companies. May be we won´t have this huge increases of dividend income probably the next time, it will come the next years. I´m optimistic about that and if you buy in the meantime shares for lower prices you will profit in the future much more if the companies starts to increase dividends again with 5 – 15%.

  7. There’s lots of headwinds for most of these companies. The one impacting most of them is the strength of the USD. While that should correct itself over the next few years, there’s not a lot to like about the global economy as a whole. China’s contracting, Europe’s horrible, the US is inching along. Most of the reserve banks around the world are still lowering rates in hopes of spurring on growth and that’s after 5-6 years of easy money policy and little to no growth across the board. So a bit of conservatism is prudent given the rather lackluster economic growth and potential recession.

    Regarding DE, they are another one of those companies that will keep their dividend steady for an extra quarter or two. I’d expect an increase even if it’s just a token one but once the demand for heavy farm equipment returns then we’ll get back to 10%+ growth.

    Also pretty sure MCD announced they won’t make their 4Q dividend payment announcement until November so they can better figure out their capital allocation policy for 2016. Sounds like 3-5% growth is on the horizon from them.

    I’m pretty confident in most of these companies going forward although muted DG might continue next year as well. Still solid holdings IMO.

  8. Hi there,

    I agree. Some companies don’t show the dividend growth we are used to but other did raise their dividends when we didn’t expect it. In my portfolio the average dividend growth rate is the same as last year.


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