The Dynamic Dividend

These Companies Will Raise Their Dividends in September

Each month I name the companies most likely to give their shareholders a raise, based on their historical dividend activity, current financial condition, and near-term prospects. Since I started writing these forecasts, 100% of the featured companies have come through with dividend hikes during the predicted month.

Below are my picks for the month of September.

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Update (9/29): All eight of the companies listed below have now declared dividends in September. Unfortunately, Corporate Office Properties Trust failed to lift its payout, breaking my streak of perfection and downgrading my accuracy record to a good-but-annoying 96%. Here are the appropriate links to each company’s dividend action:

9/9: Brady Raises Dividend for 26th Consecutive Year
9/15: Texas Instruments Hikes Dividend by 31%
9/15: COPT Announces Common and Preferred Dividends
9/20: Microsoft’s “Disappointing” Dividend Hike Makes Sense
9/22: Lockheed Martin Raises Dividend for Ninth Straight Year
9/22: McDonald’s Raises Dividend for 35th Consecutive Year
9/28: Atlantic Tele-Network Extends Dividend Growth Streak
9/29: CLARCOR Extends Dividend Growth Streak to 47 Years

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Atlantic Tele-Network (ATNI) has improved its dividend output every year since 2000, and announced a dividend hike every September dating back to 2003. There’s no reason either streak should end this year, as the rural telecommunications provider has plenty of dividend coverage (a forward payout ratio of just 32%) and a cash hoard (more than $3 per share) large enough to power its payout for years to come.

Brady Corporation (BRC) has raised its dividend for 25 consecutive years, and there’s little reason to believe the identification solutions company won’t do it again in 2011. Last year’s 2.9% dividend hike may have been one of the weakest in company history, but it just left more room for future payout growth, as Brady has plenty of cash on its balance sheet and is only on pace to return 1/3 of its earnings to shareholders this year. Brady traditionally announces its annual dividend hike just before reporting its fourth quarter results, which it’s scheduled to do on September 12 this year.

CLARCOR (CLC) has raised its dividend every year dating back to 1965, and 2011 should be no different. The manufacturer of filtration products has budding dividend growth momentum (its last six dividend hikes rank among its largest, percentage-wise) and plenty of room for that to continue (CLARCOR has a forward payout ratio of just 15%). CLARCOR’s board traditionally declares a higher dividend at its late-September meeting.

Corporate Office Properties Trust (OFC) may appear to have tenuous dividend growth prospects, given its real estate ties and ugly forward payout ratio (analysts expect the company to earn roughly half its current dividend rate next year). But the office space REIT has more than enough cash (nearly $9 per share) to cover — and grow — its payout during rough periods like this. Look for Corporate Office Properties to raise its payout in mid-September — as its done each of the last 13 years — even if only nominally.

Lockheed Martin (LMT) has raised its dividend each of the last eight years — improving its payout by a total of 582% in that short period — and each of its last eight dividend hikes have been announced in September. Lockheed has enough cash on its balance sheet to cover its payout for years, and plenty of earnings coverage, so expect the global security company to run its dividend growth streak to nine years this month.

McDonald’s (MCD), which paid its dividend in annual increments for much of the 2000′s, switched back to a quarterly payout in 2008. Since that transition, the fast food behemoth has announced a dividend hike each September. McDonald’s has raised its dividend every year since it began returning cash to its shareholders in 1976, including an 11% boost last September.

Microsoft (MSFT) initiated its payout 2004, and the tech giant has improved its dividend output by at least 10% every year since, doubling its rate in the process. Microsoft traditionally increases its dividend each September, and there’s no question the company will up its payout again this year, but by how much? With a considerable cash pile and a sub-20% forward payout ratio, the company could easily double its payout without putting a dent in its pristine balance sheet. But will it go that far? Microsoft holds a lot of its cash overseas, and may be reluctant to bring it home (and foot a hefty repatriation tax bill) just to fork it over to shareholders.

Texas Instruments (TXN) has raised its dividend every year since 2004, improving its payout by more than 500% over that short period. The semiconductor giant has made the announcement in September each of the last five years, and there’s no reason to believe it won’t do so again this year. TI has enough cash to cover its payout for more than a decade and its current dividend rate represents just 20% of Wall Street’s consensus EPS estimate for 2012.