The year is rapidly coming to a close, but there are still several big companies expected to announce dividend increases before the new year.
After a tough month of October, the market staged a short rally at the start of November, but the bears are once again in charge and driving the major indexes lower. There are multiple reasons for the bearish sentiment the market is displaying at this time, not the least of which is fear over rising interest rates. The Federal Reserve has raised rates eight times since the recession and has signaled another increase at its December meeting.
Critics of the rate increases, including President Trump, point to the fact that inflation is in check and the Fed should not be lifting rates at this time, but most economists agree that the Fed will likely lift rates in December, and at least two more time in 2019.
On the one hand, it is encouraging to see the Federal Reserve so eager to lift rates since it would not be doing so without a high degree of faith in the overall economy and its ability to handle the higher rates. On the other hand, higher interest rates will tempt investors to move money out of the stock market and into higher yielding fixed-income assets.
Low unemployment and moderately rising wages will help the Fed move forward with more rate hikes, but it will have to pay close attention to the housing market. The housing market has already cooled, and at some point, higher rates will start to have a material impact on housing.
Rates remain incredibly low on an historic basis, and unless we start to see a material impact on housing or signs of overall economic slowdown you can expect the Fed to continue lifting rates.
One of the best ways to protect yourself again money transferring out of stocks is to seek out stocks with solid dividend programs and histories of annual increases. These stocks will be partially shielded from a transfer out of the market and into higher yielding fixed-income assets.
Here are five stocks that are expected to announce dividend increases in December.
Ecolab (ECL) is a dividend aristocrat with a 32-year streak of increases. ECL has a modest yield of just 1.04%, but its lengthy streak of increases makes it attractive to dividend investors with long-term outlooks. The stock has performed incredibly well in 2018, and is currently just shy of its all-time high. The company missed its earnings estimate by a penny last quarter, but a better than expected sales number kept sentiment bullish on the stock. Ecolab tends to announce its annual increases during the first week of December with the stock trading ex-dividend mid month. In 2017 the company boosted its dividend by 10.8% and in the previous year by 57%. ECL has a low payout ratio of 30.5% and I expect this year’s increase to be more in-line with 2017’s increase and the quarterly dividend to rise from $0.41 to $0.45 per share. ECL trades at $157.80 and analysts have an average price target of $159.44 on the stock
Nucor Corp. (NUE) manufactures and sell steel and steel products. The stock has had an up and down year, which should come as no surprise since steel is a primary piece of President Trump’s trade war with China. Despite several rallies and selloffs during the year, NUE is now down just 2.7% on the year following a big rally during the first part of November when the overall market rebounded. Nucor has an impressive 44-year streak of dividend increases which the company tends to announce during the first week of December. With an incredibly low 19.9% payout ratio the company will certainly extend its streak of increases when it announces its next dividend, but investors should not expect a huge increase if recent history is any indication. Last year Nucor boosted its dividend by just 0.8%, and in the previous year it lifted its quarterly payout by 0.5%. The stock currently has a nice 2.5% yield. Look for the company to announce its next increase toward the start of December with the stock trading ex-dividend the final week of the year. NUE trades at $60.50 with an average price target of $75.00.
Abbott Labs (ABT) is another dividend aristocrat that will extend its streak of increases in December. Abbott has a 45-year streak of increases, and a low payout ratio of 38.9% with a current yield of 1.6%. The company tends to announce its dividend increases mid-December, with the stock trading ex-dividend mid-January. ABT has outperformed in 2018. Last quarter the company posted better than expected earnings and sales, but narrowed its full-year guidance which led to a brief dip in the stock before shares rebounded and the stock is currently trading in-line with where it was just before the October 17 quarterly report. Analysts remain upbeat on the stock with an average price target of $76.56 versus its current price of $70.08. Last year Last year the company lifted its dividend by 5.6% to $0.28. Look another small increase, with the quarterly dividend rising to around $0.295 for an increase of 5.3%.
Pharmaceutical giant Pfizer (PFE) has a modest eight-year streak of dividend increases that it will likely extend when it announces its next distribution during the third week of December. The stock has been a strong outperformer in 2018, with shares up 26% year to date. After strong gains during the summer months, PFE has traded sideways the last two months and the company posted mixed Q3 numbers at the end of October with a small sales miss. With a payout ratio of 45% the company can easily afford to extend its streak of increases another year when it announces its next payout. The company has been lifting its dividend by 2 pennies the last several years, and if it continues that trend the quarterly distribution will rise from 34 cents to 36 cents for a 5.8%. The stock will trade ex-dividend at the start of February. PFE is currently trading at $44.05 which is basically in-line with the $45.00 average price target analysts have for the stock.
WD-40 Company (WDFC) has been growing its dividend for the last seven years and should extend that streak when it announces its next distribution mid-December. The stock has a payout ratio of 52% and currently yields 1.3%. WDFC has enjoyed a breakout year in 2018 with shares up 43% year to date. After hitting an all-time high in September profit taking drove the stock lower before shares once again rallied following a big earnings beat mid-October. Valuation may be a concern with a forward P/E of 33, but earnings are forecast to rise 13% per annum over the next five years which should be enough to keep strength in the stock as long as the company is able to keep posting in-line or better than expected quarterly numbers. Last year WD-40 boosted its dividend by 10.2%, and in 2016 it increased its quarterly distribution by 16.6%. Given the 52% payout ratio, look for this year’s increase to be more in-line with last year’s, and the dividend to rise from $0.54 to around $0.60 for an increase of 11.1%. The stock will trade ex-dividend mid-January. WDFC is currently trading at $166.12 with a $150 average price target.