Dividend Increases are the foundation of our plan to achieve financial freedom. We are looking to build a growing, passive income stream using dividends! The key word in the previous sentence is growing.  That is why the two of us are always monitoring our company’s to see if they announce a dividend increase. Each month, we share this passion with all of you and write an article summarizing the previous month’s dividend increases and projecting the announcements in the next month. Here is the August installment of the “Dividend Increases Expected” series.

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Dividend News and Analysis – July 2020

July turned out to be an exciting month of dividend increases, and broader stock market, after all! The dividend news, as you will read, has me thinking “Dividend Increases are back!” for certain sectors of the economy. From a broader economic standpoint, the coronavirus and the impact of increasing cases continue to dominate the news cycle. The second quarter GDP results were released and it was eye opening to see GDP shrink by over 30% in a given quarter.  It just goes to show just how unprecendented these times truly are.

Related: Federal Reserve Bank & COVID-19 Response Playlist

Read: Top 5 Foundation Dividend Stocks for any Portfolio

Still, the stock market continued to climb, as usual, for many of the same reasons it has over the last few months. The Federal Reserve continues to pump cash into the economy using their various economic tools and the government continues to spend record dollars to help fight the economic impact of the coronavirus. The chart below shows the S&P 500 performance for the month.

S7P 500 July

Now, there was one additional factor during the month that was unique to July. The end of the month kicked off earnings season! Many large corporations announced their quarterly earnings results. Pundits and investors alike were glued to the newswire to read the quarterly earnings to assess the impact coronavirus has had on the economy. Which companies were winners? Which companies were losers? Just how bad was it for retail companies?  All of these questions will be answered in the coming months.

One pleaseant surprise for me during this earnings season was UPS. Unsurprisingly, the company had a fantastic quarter and their stock price soared as a result. Their trucks have been out delivering packages around the clock as consumers have shifted the online shopping! Hopefully that good fortune will result in a strong dividend increase next year.

Read: Stocks to Buy in a Post-Pandemic World

UPS was an example of strong earnings performance. Now, let’s talk about some of the FANTASTIC dividend news for the quarter! There was one dividend announcement that truly knocked me off my feet and one dividend announcement that has me feeling optimistic about dividend increases in the second half of the year.

First, let’s start with the exciting announcement. Scotts-Miracle Gro typically announces their dividend in August. This year, in conjunction with their stellar earnings, Scotts-Miracle Gro announced a dividend increase of 6% and a MASSIVE $5 per share special dividend.  To put that in perspective, the company’s new annual dividend is $2.48 per share. Their special dividend is double the regular annual dividend. Insananity!

The company has a history of periodically announcing a large special dividend. In fact, believe it or not, I invested in Scotts-Miracle Gro in 2014 after its last special dividend. SMG’s yield may not be the highest. However, the company’s dividend growth history and their track record for announcing large special dividend payments are two reasons why I couldn’t be happier to be a shareholder.

Second, W.W. Grainger announced a 6.3% dividend increase in July. This is important, in my opinion, due to the fact that Grainger delayed their dividend announcement one quarter. Grainger typically increases their dividend in April. The company opted to pass on announcing a dividend increase that month due to the uncertainty of the pandemic.

Three months later, after carefully evaluating the financial impact of the pandemic for a quarter, management was comfotable enough with their financial position to announce a 6.3% dividend increase. Now, take a step back for a second. Think about how many other companies delayed announcing a dividend increase in the second quarter.  Could we be in store for a wave of dividend increases this quarter?  That is why I am so excited about Grainger’s increase!

(adsbygoogle = window.adsbygoogle || []).push({}); Dividend Increases in July 2020 – Actual

Before looking ahead to the dividend increases, I like to review the actual results from the previous month. I discussed the dividend increases by Scotts-Miracle Gro and Grainger in the previous section. Therefore, I opted to not include their dividend increases in this section as well. July was a busy month and we have a lot of companies to cover. Therefore, let’s jump right in and review the actual dividend increases in July.

Company #1: Stanley Black & Decker (SWK) – Let’s start this party off with a Dividend King! The legendary, iconic Stanley Black & Decker announced a very small dividend increase in July. In fact, the company only increased their quarterly dividend $.01 per share!  SWK’s five year dividend growth rate is now 5.83%. Thus, the company’s dividend increase was well below their average. However, in this current enviornment, you cannot blame management for announcing a conservative dividend increase. A small increase is better than no dividend increase (or a dividend cut)!

Actual dividend increase –  1.4%

Greater than last year? –  No

Company #2: Walgreens Boots Alliance (WBA) – This was a fun dividend increase to follow. Why? The reason it is fun is due to the fact that we started a position in my wife’s portfolio in June. In total, we own 7 shares of the retail drug store giant. Even though that isn’t a large position, every dollar and cent counts on our journey towards financial freedom. That is why I was excited when the company announced a 2.2% dividend increase at the beginning of July. Similar to SWK, Walgreen’s dividend increase was less than the previous year.

Actual dividend increase –  2.2%

Greater than last year? –  No

Read: Dividend Stock Purchases: Bert’s June 2020 Summary

Read: Stocks with a Perfect Dividend Payout Ratio

Company #3: J.M. Smuckers (SJM) – “With a name like Smuckers, the dividend increase has to be good.” Oh wait, that’s not their actual motto. It looks like I made a slight tweak and added dividend increase into the company’s famous tagline.  Even with my addition, the dividend increases was “not bad.” Great for the COVID environment; however, poor compared to their historical context. The company’s five-year average dividend growth rate is 6.63%.  Thus, their 2.2% dividend increase in 2020 was well below the average.

Actual dividend increase –  2.2%

Greater than last year? –  No

Read: Our Full Dividend Stock Portfolios

Company #4:  Norfolk Southern Corporation (NSC) – This is where things are really interesting. In 2018 and 2019, Norfolk-Southern increased their dividend twice. Once in January and once in July. However, in 2020, it has been a different story. The company did not increase their dividend in January. At the time, I convinced myself the company was returning to an annual dividend increase schedule. Surely, the company would just announce one dividend increase in July (or at least I told myself). Then, the pandemic struck. In July, when it came time to increase their dividend, Norfolk opted to maintain their current dividend. Hopefully, the company announces an increased before the end of the year to keep their dividend increase streak alive.

Company #5: Kellogg Co (K) – Well, looks like we had another company pass on increasing their dividend in July. Like NSC, Kellogg opted to forgoe a dividend increase for the month.  The company has increased their dividend for 15 consecutive years and are a decade away from earning the coveted title of Dividend Aristocrat. Luckily, the company still has time to increase their dividend and keep the streak alive. Hopefully, they will follow the likes of Grainger and just delay their dividend increase by a quarter.

Company #6: Cummins, Inc. (CMI) –  They always say that big news comes in threes, right? Well, I guess that the “big news” is that the third company from my July article did not increase their dividend! Prior to 2020, CMI’s dividend was on a tear. The company had announced large dividend increases the last few years. However, like Norfolk Southern and Kellogg, Cummins decided to pass on increasing their dividend this July. Hopefully, they will increase their dividend in October.

Bonus Company #1: Altria Group (MO) – Altria threw us a curveball in July. Typically, Altria announces their dividend increase in August. In fact, I was getting ready to include Altria in the next section of this article. However, much to everyone’s surprise, the company announced their dividend increase a month early! It was interesting, and a little shocking, that the company announced their dividend early. Unfortunately, the dividend increase was less than last year and barely above inflation. It was fun to be kept on my toes though!

Actual dividend increase – 2.4%

Greater than last year? –  No

Bonus Company #2: American Water Works (AWR) – Wow. I am a little shocked here. American Water Works is now the third company that increased their dividend a month early.  AWR’s dividend matched the same dollar amount as last year. Their quarterly dividedn increased $.03 per share. This Dividend King is as consistent as they come. I am happy to read about a company that had a dividend increase in line with their previous dividend increases.

Actual dividend increase – 9.8%

Greater than last year? –  No

Read: Dividend Kings: Who & What are They?

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The month of August is going to be a light month in terms of dividend increases. This will be the case due to the fact that 3 companies that usually announce their dividend increase in August announced their dividend increase in July instead! Again, it is a little shocking that so many companies announced early! However, even though this will now be a light month, we found four companies to highlight. Plus, as we learned in July, there will always be surprises and unexpected dividend announcements throughout the month.

Company #1: Illinois Tool Works (ITW) – Illinois Tool Works is the highest profile company on this list. ITW competes with the likes of 3M Company. They are not only a Dividend Aristocrat, but a Dividend King as well. Several years ago, I had the opportunity to establish a large position in the company after several poor performing quarters. Today, I couldn’t be happier to be a shareholder in this great dividend growth stock with a strong dividend growth rate. Last year, ITW increaed their dividend 7%, which was well below their five-year dividend growth rate.  My expectation is that the dividend increase will be even lower this year due to the current economic enviornment.

Last year’s dividend increase –  7.0%

Five-year average DGR –  17.4%

Expected timing of Dividend Increase Announcement –  Beginning of the month

Read: Dividend Aristocrats – Who & What are They?

Company #2:  Dover Corporation (DOV) –  Dover is a Dividend King as well. The company has increased their dividend for 64 consecutive years. I am fully anticipating that the streak will increase to 65 during the year. To be honest, despite their strong dividend track record, this is not a company I have followed closely over the years. The company offers too low of a yield (<2%) and dividend growth rate (five-year average <5%) to fit my investment metrics. In a situation like this, rather than invest in Dover, I would invest in a Vanguard S&P 500 ETF or a high-yield dividend ETF.

Last year’s dividend increase –  2.1%

Five-year average DGR –  4.2%

Expected timing of Dividend Increase Announcement –  Beginning of the month

Company #3:  Nordson (NDSN) –  Next up on the list is Nordson, the equipment manufacturing giant headquartered in the same area as the Dividend Diplomats…Northeast Ohio.  The company is a Dividend Aristocrat, as they have increased their dividend for 39 consecutive years. The dividend growth rate is strong and significantly outpaces infaltion. However, the company has a low dividend yield. In fact, it is currently less than 1%!

Last year’s dividend increase –  8.6%

Five-year average DGR –  11.6%

Expected timing of Dividend Increase Announcement –  Beginning of the month

Company #4: Federal Realty Investment Trust (FRT) –  Last, but definitely not least, we have a REIT. Not only do we have a REIT. We have the REIT with the longest track record of increasing their dividend annually (per the company’s investor relations website). The pandemic has had an interesting impact on the REIT sector. REITs with heavy retail exposure have felt the impact of the economic shutdown and the slow reopening of the economy. Some, in fact, have even cut their dividend as a result. However, FRT and Realty Income have continued as normal. The companies have carefully managed their balance sheet and cash flows over the years. Thus, I still expect FRT to increase this August.

Last year’s dividend increase –  2.9%

Five-year average DGR –  3.9%

Expected timing of Dividend Increase Announcement –  Beginning of the month

Summary

Let’s hope August will be as crazy as July. Despite a few companies passing on increasing their dividend in July, the Scotts-Miracle Gro and Grainger dividend news at the very end of the month could be a fantastic sign of things to come. You know what? I believe it is going to (**irrational confidence). In all seriousness, it was just nice to receive some positive dividend news once again and that is the feeling I hope to achieve once again in August. Regardless of what the market brings, I will continue to invest in undervalued dividend growth stocks that pass the metrics of our dividend stock screener. Let’s bring it on Mr. Market!

What dividend increases did you receive in July? What increases are you expecting in August? Are you as optimistic about increases as I am? Or do you think I am acting irrationally confident?

Bert

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