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!
-Lanny