Good Dividend Boosts Expected From McDonald’s And Microsoft In September

This is the latest in my series of articles where I provide predictions of annual dividend increases for a variety of long-term dividend growth companies. At the end of July, I provided predictions for 16 dividend growth companies that have historically announced annual payout increases in August. In this article I’ll look at another 13 dividend growth companies that I expect will announce their annual dividend increases in September.

Before I get to that, I want to note two other companies with a history of dividend growth that also announced annual dividend increases in August:

– Chemical company Ingredion (INGR) extended its streak to 14 years with the announcement of a 9.9% dividend increase to an annualized $3.12. Ingredion has a new forward yield of 3.04%.

– Semiconductor company Lam Research Corporation (LRCX) completes a decade of dividend growth with a 15.9% boost to an annualized $8.00, giving it a forward yield of 1.14%.

Here are the results from my predictions from August (as always, the original predictions are available here), followed by my predictions for the dividend increases that I’m expecting to be announced in September:

(All yields are based on stock prices at the market close on Friday, September 1st.)

Results for Dividend Increase Announcements from August

American Financial Group, Inc. (AFG) – 18 years

Prediction: 9.5 – 11.1% increase to $2.76 – $2.80

Actual: 12.7% increase to $2.84

Forward yield: 2.41%

Long term investors were rewarded with another double-digit boost from the insurer, on top of the $2.00 special dividend just a few months ago.

BancFirst Corporation (BANF) – 30 years

Prediction: 10.0 – 12.5% increase to $1.76 – $1.80

Actual: Deferred to September

The regional bank should announce its latest dividend increase in September.

Badger Meter, Inc. (BMI) – 32 years

Prediction: 11.1 – 13.3% increase to $1.00 – $1.02

Actual: 20.0% increase to $1.08

Forward yield: 0.64%

Dividend growth from the water filtration company is accelerating as Badger Meter expands its business base through acquisitions.

Broadridge Financial Solutions, Inc. (BR) – 17 years

Prediction: 12.4 – 14.5% increase to $3.26 – $3.32

Actual: 10.3% increase to $3.20

Forward yield: 1.70%

Despite flat EPS growth, the financial technology company announced a nice increase.

CBOE Global Markets, Inc. (CBOE) – 14 years

Prediction: 8.0 – 10.0% increase to $2.16 – $2.20

Actual: 10.0% increase to $2.20

Forward yield: 1.46%

Dividend growth accelerated from last year’s 4% increase as earnings growth returned to normal for the developer of equity options and futures.

Carlisle Companies Incorporated (CSL) – 48 years

Prediction: 17.3 – 20.0% increase to $3.52 – $3.60

Actual: 13.3% increase to $3.40

Forward yield: 1.27%

The 13% increase from the diversified manufacturer is in line with the company’s long-term dividend growth rate.

Dover Corporation (DOV) – 69 years

Prediction: 5.0 – 7.9% increase to $2.12 – $2.18

Actual: 1.0% increase to $2.04

Forward yield: 1.37%

Despite a jump in earnings, the industrial manufacturer announced its fourth straight year of 2-cent annual dividend growth.

Federal Realty Investment Trust (FRT) – 57 years

Prediction: 1.9 – 2.8% increase to $4.40 – $4.44

Actual: 0.9% increase to $4.36

Forward yield: 4.45%

It’s hard to believe, but this year’s dividend growth slowed from even last year’s sub-2% payout boost. The retail REIT is keeping its growth streak alive.

International Flavors & Fragrances Inc. (IFF) – 21 years

Prediction: 0.6 – 2.5% increase to $3.26 – $3.32

Actual: 0% increase to $3.24

Forward yield: 4.61%

As EPS continue to fall, the specialty chemical company is pausing dividend growth. IFF has until the end of next year to keep its year-over-year dividend growth streak going.

Intuit Inc. (INTU) – 13 years of dividend growth

Prediction: 15.4 – 19.9% increase to $3.60 – $3.74

Actual: 15.4% increase to $3.60

Forward yield: 0.66%

It’s another year of dividend growth in the mid-teens for Intuit.

Illinois Tool Works Inc. (ITW) – 61 years

Prediction: 7.6 – 9.9% increase to $5.64 – $5.76

Actual: 6.9% increase to $5.60

Forward yield: 2.26%

The economic slowdown hit ITW’s dividend boost, which is well below the company’s 5-year average growth rate of 11.5%.

MGE Energy, Inc. (MGEE) – 49 years

Prediction: 4.3 – 5.5% increase to $1.70 – $1.72

Actual: 4.9% increase to $1.71

Forward yield: 2.37%

The 8-cent annual dividend growth is consistent with MGE Energy’s dividend growth history.

Altria Group, Inc. (MO) – 15 years

Prediction: 3.7 – 5.9% increase to $3.90 – $3.98

Actual: 4.3% increase to $3.92

Forward yield: 8.89%

The tobacco company’s latest increase was similar to last year’s boost and well below its decade long average of 8%.

Nordson Corporation (NDSN) – 60 years

Prediction: 15.4 – 18.5% increase to $3.00 – $3.08

Actual: 4.6% increase to $2.72

Forward yield: 1.11%

The developer and manufacturer of fluid dispensing equipment pulled way back on its dividend boost this year with an increase far below its 16% average growth rate.

The Scotts Miracle-Gro Company (SMG) – 13 years

Prediction: 0 – 1.5% increase to $2.64 – $2.68

Actual: 0% increase to $2.64

Forward yield: 4.80%

Like IFF above, a dramatic drop in earnings forced Scotts Miracle-Gro to pause its dividend growth this year.

Skyworks Solutions, Inc. (SWKS) – 10 years

Prediction: 6.5 – 8.1% increase to $2.64 – $2.68

Actual: 9.7% increase to $2.72

Forward yield: 2.48%

Dividend growth at the semiconductor company slowed slightly from last year’s 11% increase.

Verizon Communications Inc. (VZ) – 19 years

Prediction: 4.6 – 6.1% increase to $2.73 – $2.77

Actual: Deferred until September

Looks like we’ll have to wait until after Labor Day for the next dividend increase from Verizon.

Westlake Corporation (WLK) – 20 years

Prediction: 6.4 – 10.6% increase to $1.52 – $1.58

Actual: 40.1% increase to $2.00

Forward yield: 1.51%

I completely underestimated Westlake Chemical’s dividend boost. Investors have seen a 68% increase in Westlake’s payout since 2021.

Essential Utilities, Inc. (WTRG) – 33 years

Prediction: 6.3 – 8.0% increase to $1.22 – $1.24

Actual: 7.0% increase to $1.2284

Forward yield: 3.35%

The water and natural gas utility company continues its record of 7% dividend growth.

Predictions for Dividend Increases for September

There are 13 long-term dividend growth companies I expect to announce their annual increases in September. First, here are my predictions for three featured companies:

Lockheed Martin Corporation (LMT) – 21 years of dividend growth

As one of three aerospace & defense mega-contractors – the other two being Boeing and Northrop Grumman – Lockheed Martin benefits from increases in Federal Government spending. The company is broken out into four distinct business segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. Sales and profits were lower across all segments except for Aeronautics in 2022, but not dramatically so, as defense spending tends to shift across different programs and products.

Looking forward to 2023, Lockheed Martin is guiding to slightly lower adjusted EPS and lower free cash flow for the full year. Lower free cash flow will impact any company’s ability to pay and grow dividends, and Lockheed Martin is no exception. So what will the impact be? Historically, the company has grown dividends in the 10% range but more recent dividend increases have been smaller. The company has boosted its annual dividend by 80 cents over each of the last 4 years, with the percent growth falling to 7% last year as a result. Lockheed’s current payout ratio of 52%, based on 2022’s EPS, isn’t too high and can support another mid-single digit boost, up to a 5th straight year of 80 cent annual growth.

Prediction: 5.0 – 6.7% increase to $12.60 – $12.80

Predicted Forward Yield: 2.81 – 2.86%

McDonald’s Corporation (MCD) – 48 years

The fast food restaurant owner, operator and franchiser is working on revitalizing its business under a strategy named Accelerating the Arches. Most obvious to McDonald’s customers is the implementation of online ordering, either through the internet or through kiosks inside restaurants. Other aspects include refocusing on what the company calls its “core menu” and testing different restaurant concepts, including a new test restaurant in Fort Worth, Texas.

For investors, what’s most obvious is a return to fast growth in both sales and earnings. Although EPS fell 17% in 2022, this was mostly due to the sale of the company’s business in Russia. Adjusting for this one-time event, global sales grew 11% and adjusted EPS grew 9% – impressive for such a large company. This was followed up by EPS growth of 20% in the first half of 2023.

Management’s success in reestablishing growth and increasing free cash flow at McDonald’s has allowed it to fund the repurchase of more than 6% of the outstanding shares since 2018. It’s also allowed the company to boost its dividend faster than it has in the past. The 7% compounded growth rate over the last decade has been impressive, but last year McDonald’s returned to double-digit dividend growth with a 10.1% increase. With the continued growth and the sale of its Russian business behind it, investors can look forward to another double-digit boost from McDonald’s.

Prediction: 9.9 – 11.2% increase to $6.68 – $6.76

Predicted Forward Yield: 2.38 – 2.41%

Microsoft Corporation (MSFT) – 21 years

Widely held Microsoft breaks its business up into three segments: Productivity and Business Processes, which includes revenues from MS Office 365; Intelligent Cloud, which handles all of Microsoft’s cloud business; and More Personal Computing, which includes the sales of the Windows operating system when a new computer is purchased, as well as the company’s devices, search and advertising businesses. To date, Microsoft has seen very rapid growth from its cloud services since offering them commercially in 2010, and that growth continued into 2022 with operating income up more than 17%. The company is also seeing growth from its Productivity and Business Processes business segment as users move to the Office 365 subscription service; operating income from this segment grew nearly 10%. Growth in both these segments offset a 9% decline in the More Personal Computing segment. Overall, Microsoft’s adjusted EPS grew 6.5% in fiscal year 2023 (which ended June 30th, 2023). The strong dollar impacted these growth numbers to the tune of another 6% – that is, ignoring the impact of the strong dollar, EPS growth would have been more than 12%.

So, with the income growth available, what will Microsoft announce for its next dividend increase? Over the past decade, the company has compounded its dividend by almost 12% and, with the EPS growth, has managed to keep its payout ratio below 30%, leaving plenty of room for another good payout boost. Unfortunately, I don’t think the company will return to growth in the mid-teens as the EPS growth doesn’t support it, but will announce another dividend increase right around 10% – similar to last year’s 9.7% boost.

Prediction: 8.8 – 11.8% increase to $2.96 – $3.04

Predicted Forward Yield: 0.90 – 0.92%

Here are my predictions for the 10 other companies which should announce annual increases in September:

Company	# Yrs	Industry	Prediction (%)	New Annual Rate
Accenture plc (ACN)	12	Technology – Information Technology Services	14.3 – 16.1%	$5.12 – $5.20
Business consulting firm Accenture is a debt free, cash flow machine. The company routinely posts double-digit dividend growth and with EPS growth of 17% last year, investors can look forward to another boost in the mid-teens – very similar to last year’s 15.5% increase. Projected Forward Yield: 1.56 – 1.59%
Black Hills Corporation (BKH)	53	Utilities – Diversified	4.0 – 5.6%	$2.60 – $2.64
Black Hills provides natural gas and electric utility service to more than 1.3 million customers across the center of the United States, ranging from Montana to Arkansas. The company has boosted its annual dividend by 12 cents in each of the last 6 years, resulting in slowly decreasing dividend growth in the 5 – 6% range. The company posted 6% EPS growth last year, but is expecting a drop of EPS between 3 – 8% this year. While Black Hills’ payout ratio is climbing, at 67% the company still has room for another 5% increase. Projected Forward Yield: 4.75 – 4.82%
Brady Corporation (BRC)	38	Industrials – Security & Protection Services	2.2 – 4.3%	$0.94 – $0.96
Brady Corporation designs and manufactures labelling and identification products. The company’s R&D investments are starting to pay off, with 17% EPS growth in 2022 and another 15 – 20% EPS growth expected in 2023. Historically, the company has boosted its dividend in the 2% range. Given that Brady is putting a lot of free cash flow to share buybacks, I expect that this year’s dividend increase will be in the historic range or a little larger. Projected Forward Yield: 1.85 – 1.89%
Fifth Third Bancorp (FITB)	13	Banks – Regional	6.1% – 10.6%	$1.40 – $1.46
After restarting its dividend growth streak after the financial crisis of 2007 – 2008, Fifth Third Bancorp has compounded its dividend at more than 12%. The company may have trouble duplicating last year’s 10% increase this year, as EPS fell 11% in 2022. And while EPS have rebounded 10% in the first half of 2023, the issues hanging over Fifth Third, like so many other mid-sized banks, will convince the company to continue to decelerate dividend growth. Projected Forward Yield: 5.18 – 5.40%
The First of Long Island Corporation (FLIC)	27	Banks – Regional	2.4 – 7.1%	$0.86 – $0.90
Like many small to mid-size banks, earnings at First of Long Island are getting crushed by rising interest rates. Although earnings were up 13% last year, the nearly 50% drop over the first six months of 2023 will force the bank to limit its next dividend increase. Projected Forward Yield: 6.41 – 6.71%
Honeywell International Inc. (HON)	13	Industrials – Conglomerates	4.9 – 6.8%	$4.32 – $4.40
While sales at Honeywell’s building technology business segment are flat year-to-date, sales and earnings are up in the company’s other two business segments (Aerospace and Performance Materials & Technologies), driving 9% adjusted EPS growth last year and expectations of another 3 – 6% growth in 2023. While the company will be hard-pressed to grow its dividend in line with its decade-long growth rate of 10%, investors can expect a decent 5% boost like last year. Projected Forward Yield: 2.29 – 2.34%
New Jersey Resources Corporation (NJR)	28	Utilities – Regulated Gas	6.4 – 8.3%	$1.66 – $1.69
The natural gas utility generally grows its dividend by 7% a year. With last year’s EPS growth of 16% and another 5 – 9% expected this year, investors can look forward to another boost in the 7% range. Projected Forward Yield: 3.93 – 4.00%
OGE Energy Corporation (OGE)	18	Utilities – Regulated Electric	1.0 – 2.0%	$1.6729 – $1.6895
The parent company of Oklahoma Gas and Electric recently completed the sale of its midstream operations business to Energy Transfer LP. Comparing equivalent earnings without the effect of the sold-off business, the company is looking at a 7% drop in EPS. Last year, when the sale was pending, OGE Energy boosted its dividend by only 1% and with a payout ratio north of 80% with the reduced earnings, the dividend growth will be minimal from OGE Energy. Projected Forward Yield: 4.95 – 5.00%
Philip Morris International Inc. (PM)	15	Consumer Defensive – Tobacco	3.9 – 5.9%	$5.28 – $5.38
Philip Morris investors saw a minimal dividend increase of less than 2% last year as full-year earnings fell 10% in 2022. Longer-term, investors can expect a return to the company’s normal rate of growth, as Philip Morris is guiding EPS growth to between 8 and 10%. Investors won’t see 10% dividend growth this year, but can expect a decent boost in the low-to-mid single digits when the company announces its next year of dividend growth on September 13th – its 16th since the spin-off of its U. S. tobacco business into a separate company. Projected Forward Yield: 5.52 – 5.62%
U.S. Bancorp (USB)	13	Banks – Regional	4.2 – 6.3%	$2.00 – $2.04
U.S. Bancorp has rewarded investors over the last 5 years with an average compounded growth rate of 10%; this includes last year’s small-ish boost of 4.3%. It will likely be another year of a small boost, as the company is having to set aside funds for potential credit losses. And while earnings in the first half of 2023 are up 10% year-over-year, this doesn’t fully offset 2022’s 28% drop in earnings. Investors can expect another year of growth in the mid-single digits. Projected Forward Yield: 5.40 – 5.50%

Click to enlarge

Summary

Dividend growth returned in August, with several companies announcing 10%+ dividend increases. Financial technology company Intuit announced an increase in the mid-teens, while Broadridge, CBOE, American Financial Group, and diversified manufacturer Carlisle announced increases in the 10 – 12% range. But the big winners were investors in chemical company Westlake and instrumentation designer and manufacturer Badger Meter, which announced 40% and 20% boosts, respectively.

To the downside, two companies are at risk of breaking their dividend growth streak. Chemical company International Flavors and Fragrances and agricultural company Scotts Miracle-Gro skipped their dividend increase, which they traditionally announce in the third quarter of the year. Instead, both companies kept their payouts steady. Since they last increased their payout in the third quarter of 2022, both companies now have until the end of 2024 to increase their dividend to keep their dividend growth streaks alive.

Looking forward to September, investors can expect good increases from widely-held McDonald’s, Microsoft and Philip Morris. Utilities New Jersey Resources and OGE, and banks Fifth Third, First of Long Island Corporation, and U.S. Bank should announce modest increases, while business consulting firm Accenture should announce a good double-digit dividend boost.