The Dividend Aristocrats are a select group of 66 stocks in the S&P 500 Index that have each raised their dividends for at least 25 consecutive years. In this five-part series, Ben Reynolds — editor of Sure Dividend — highlights his five favorites.
We believe the Dividend Aristocrats are among the best stocks to buy and hold for the long-term. PPG Industries (PPG) is a time-tested Dividend Aristocrat. It has increased its dividend each year for the past 50 years.
Read Dividend Aristocrats Part 1 here…
Read Dividend Aristocrats Part 2 here…
This period of time includes multiple recessions, which proves the company’s ability to navigate downturns while continuing to raise its dividend. The company also has strong growth prospects ahead, leading to high expected returns for this Dividend Aristocrat.
Industry Dominance Pays Dividends
PPG Industries is the world’s largest paints and coatings company. It operates in a concentrated industry, as its only major competitors are Sherwin-Williams and Akzo Nobel. PPG benefits from global scale, as it has employees located in more than 70 countries at 100 locations.
PPG Industries’ major competitive advantage is that it is one of the most well-known brands in the paints and coatings industry. The company is also one of just three similarly-sized companies in this industry, which limits competitors. This gives PPG Industries size and scale and the ability to increase prices. This has been reflected in the company’s ability to increase product prices in order to offset volume declines.
And, when the economy is growing, the company can realize growth through rising volumes and prices. In the most recent quarter, revenue grew 11.4% to $4.19 billion, beating estimates by $140 million. For 2021, revenue grew 21% to $16.8 billion. Adjusted earnings-per-share of $6.77 rose 11% from the previous year.
Inflation has taken its toll on the company’s bottom line, but once again its ability to pass along rising costs through price hikes is clear. PPG Industries is expected to earn $8.12 in 2022, which would represent 21% growth from 2021.
PPG: Dividend Growth Stock
Even after 50 years of dividend growth, PPG Industries has a very low payout ratio. Based on expected adjusted EPS of $8.12, the company has a projected payout ratio of 29% for 2022. This means the company has a high level of dividend safety, which should allow it to continue raising dividends each year, even during a recession.
The stock has a current dividend yield of 1.7%. Shareholder returns will also be boosted by earnings-per-share growth, which we estimate at 8% per year over the next five years. Product demand dropped significantly due to the impact of the pandemic. However, we expect the recovery from the pandemic to offer a higher rate of growth for the company, evident by strong projected earnings-per-share for the current year.
Lastly, we believe the stock is undervalued. Shares trade for a 2022 P/E ratio of 16.9, compared with our fair value estimate of 19. An expanding P/E ratio could be an additional catalyst for future returns. Putting it all together, we expect total returns of 13.3% per year over the next five years for PPG Industries stock.
