The bar is raised for Q3. With a handful of earnings reports delivered from major banks, companies from other sectors begin now to report results to the street. This quarter, though, the S&P 500®'s EPS growth rate is not all that impressive, at under 5%.[1] We discussed it last week in our Q4 2024 Investor Conference & Events Highlights missive, but there are new developments.
The US Dollar Index has been on the rise, interest rates continue to firm following the Fed's first rate cut a month ago, and the threat of higher oil prices amid renewed geopolitical tensions is a worry. These are key potential macro headwinds, and while they may not be fully felt in earnings updates from multinationals in the weeks ahead, Q4's stout bottom-line growth rate could be called into question (not to mention 2025's lofty S&P 500 EPS estimate).
Those in the C-suite don't seem too worried. Dividend-increase announcements are on the rise according to Wall Street Horizon data, while corporations continue to be big buyers of their own stock.[2] Throw in upper-end consumers who don't seem to quit spending and the potential for improved economic activity from China following a bazooka stimulus package announced earlier this month, and the bull train has pressed on.
There are certainly risks out there, but take a step back in time to a year ago. Global stocks were in the throes of an old-fashioned 10% market correction, led lower by mega-cap tech. Worries about a potential war in the Middle East, lasting inflation, and a protracted period of high interest rates (remember “higher for longer”?) had the bears feeling in command as the fourth quarter began. The bulls eventually took charge, though, and the S&P 500 is up by more than 35%, dividends included, from 12 months ago. In fact, the bull market itself just blew out the candles on its second birthday last weekend.
So, will the momentum continue through year-end? The upside freight train is chugging hard - the SPX posting its best year-to-date return through Q3 since 1997.[3] We're on a bit of a dividend kick here at Wall Street Horizon, so let's double-click on three companies that recently announced payout hikes – each has an upcoming earnings date that deviates from historical norms. Perhaps investors can glean clues as to where the market's tracks will lead in the weeks ahead.
Academic research shows that when a company confirms a quarterly earnings date that is later than when they have historically reported, it's typically a sign that the company will share bad news on their upcoming call, while moving a release date earlier suggests the opposite.[4]
Regions Financial (RF, Financial)
Regions reports its Q3 results on Friday, October 18 BMO (confirmed). A conference call follows the announcement. Three months ago, the Alabama-based Regional Banks industry company reported net income available to common shareholders of $477 million and earnings per diluted share of $0.52, which modestly topped estimates, according to Option Research & Technology Services (ORATS).[5]
CEO John Turner noted, “The company exceeded all minimum capital levels and maintained a preliminary stress capital buffer at the 2.5% floor in the recent Federal Reserve Supervisory Stress Test.”[6] The Q2 EPS beat, and confirmation of successful stress test results, may have laid the foundation for a dividend increase.
Regions' Board of Directors declared a quarterly common dividend of $0.25 per share, a 4% jump over the Q2 dividend amount. The increase built on a 20% increase last year, making it three consecutive years of dividend growth. For the upcoming report, the bank's reporting date is earlier than usual. Further out, it remains to be seen how the yield curve's de-inversion will impact the bank's net interest income.
A.O. Smith (AOS, Financial)
Another US cyclical, A.O. Smith is an early-season reporter. You might not be familiar with this one, but dividend-growth investors sure know about it. AOS is a holding in the First Trust SMID Cap Rising Dividend Achievers ETF (SDVY).[7] The latest distribution hike came just last week. A 6% increase, CEO Kevin Wheeler remarked, "We are proud to say the five-year compound annual growth rate of our dividend rate is approximately 8%, and that we have increased our dividend each year for over 30 years."[8]
Shares of the dividend aristocrat have underperformed the S&P 500 so far in 2024, though the stock is up close to 30% year-on-year. The uptrend's pause is at least partly explained by three consecutive poor earnings reactions. Going back to January, AOS has declined by 2%, 5%, and 9% post-earnings in the last three events, respectively, despite reporting EPS beats each time, per ORATS.[9]
On October 2, the $12.6 billion market cap company confirmed its Q3 report to occur on Tuesday, October 22, two days earlier than average.
Philip Morris International (PM, Financial)
Last on today's list is a stock that has been on fire. Bears on Philip Morris International (PM) are indeed up in smoke considering that the 2024 return is 32% as of October 9. The rally began in the second quarter after three years of lackluster price action. Even after the jolt, PM's yield is 4.6%, more than three times that of the S&P 500.
On September 12, PM's Board of Directors announced an increase of the company's regular quarterly dividend by 3.8% to an annualized rate of $5.40 per share.[10] Philip Morris continues to evolve its portfolio as the traditional cigarette business wanes. A new smoke-free future is its focus.
Investors will hear important updates on that progression when PM issues its Q3 earnings report on Tuesday, October 22 BMO. The company's earnings date is modestly later than usual according to Wall Street Horizon data.
The Bottom Line
Global companies appear to have a shareholder bias as record-high profits pour in. Dividends and buybacks are stout, while returns across most global stock markets have been impressive in the past year. Be on the lookout for more dividend news over the next few weeks and if firms can meet those elevated expectations.
1 Earnings Insight, FactSet, John Butters, October 4, 2024, https://advantage.factset.com
2 S&P 500 Q2 2024 Buybacks Decrease 0.4% from Q1 2024, S&P Dow Jones Indices, October 7, 2024, https://www.prnewswire.com
3 Traders Blow Off US Election Risks as Stocks Race Into October, Bloomberg, Jess Menton, September 29, 2024, https://www.bloomberg.com
4 Time Will Tell: Information in the Timing of Scheduled Earnings News, Journal of Financial and Quantitative Analysis, Eric C. So, Travis L. Johnson, Dec, 2018, ​https://papers.ssrn.com
5 RF, ORATS, October 10, 2024, https://dashboard.orats.com
6 Regions reports second quarter 2024 earnings of $477 million, earnings per diluted share of $0.52, Regions Financial Corp., July 19, 2024, https://ir.regions.com
7 First Trust SMID Cap Rising Dividend Achievers ETF (SDVY), First Trust, October 10, 2024, https://www.ftportfolios.com
8 A. O. Smith Increases Quarterly Dividend to $0.34 per Share, AO Smith, October 7, 2024, https://investor.aosmith.com
9 AOS, ORATS, October 10, 2024, https://dashboard.orats.com/
​10 Philip Morris International Increases Dividend by 3.8% to Annualized Rate of $5.40 per Share, Phillip Morris International Inc., September 12, 2024,​ https://www.pmi.com
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