Today we continue our special report from Bob Ciura — editor of Sure Dividend — offering a countdown of his top dividend aristocrats; here, he reviews the world’s largest paints and coatings company.
The dividend aristocrats have maintained long histories of growing their dividend payouts. Their long-term growth and durable competitive advantages provide rising passive income for shareholders. The strongest aristocrats can continue to increase their dividends each year, even during recessions.
PPG Industries (PPG) has increased its dividend each year for over 40 years in a row. The stock also has a current dividend yield of 1.8%, which is slightly above the ~1.6% average dividend yield in the S&P 500 Index. The stock is attractively valued, with a strong growth outlook and a safe dividend.
Business Overview
PPG Industries was founded in 1883 as a manufacturer and distributor of glass (its name stands for Pittsburgh Plate Glass) and today has approximately 3,500 technical employees located in more than 70 countries at ~100 locations. The company generates annual revenues of more than $18 billion.
On January 18th, 2024, PPG Industries reported fourth quarter and full year results for the period ending December 31st, 2023. For the quarter, revenue grew 3.8% to a new quarterly record $4.35 billion, which topped estimates by $80 million. Adjusted net income of $363 million, or $1.53 per share, compared to adjusted net income of $286 million, or $1.22 per share, in the prior year. Adjusted earnings-per-share was $0.03 more than expected.
Fourth quarter revenue results were driven by 1% organic growth, as higher prices more than offset a decline in volume. Performance Coatings revenue grew 5% to $2.62 billion. For the year, revenue grew 2.8% to a record $18.2 billion while adjusted earnings-per-share of $7.67 compared to $6.05 in 2022.
Growth Prospects
PPG Industries’ earnings-per-share have a growth rate of 7.4% over the last decade. The company expects adjusted earnings-per-share in a range of $8.34 to $8.59 for the year. At the midpoint, this would represent a 10.4% increase from the prior year. We expect earnings-per-share to grow at a rate of 8% through 2029.
This growth will easily allow the company to continue raising its dividend each year. PPG has increased its dividend for over 50 consecutive years. Even after more than five decades of dividend growth, PPG Industries has a very low payout ratio of approximately 31% for fiscal 2024.
Dividend & Valuation Analysis
The stock has traded with an average price-to-earnings ratio of 22.3 over the last decade. We reaffirm our target price-to-earnings ratio of 19 for PPG stock. Shares are currently priced at 17 times expected 2024 earnings-per-share. If the stock’s multiple were to expand to our target over the next five years, the expanding P/E would be a 2.2% tailwind to annual returns during this period.
In addition, we expect 8% annual earnings-per-share growth for PPG. Lastly, shares have a current dividend yield of 1.8%. Overall, we expect total returns of 12.0% per year over the next five years for PPG stock.
