Dividend Aristocrats In Focus: PPG Industries

Up to date on February 2nd, 2023 by Nathan Parsh

PPG Industries (PPG) is likely one of the largest paint firms on this planet. Additionally it is one of the dependable dividend shares available in the market–PPG has paid dividends each quarter since 1899.

Furthermore, the corporate has elevated its dividend annually for the final 51 years, which qualifies it to be a member of the unique Dividend Aristocrats record.

It is a group of 68 shares within the S&P 500 Index with not less than 25 consecutive years of dividend progress.

We think about the Dividend Aristocrats to be among the many elite dividend-paying firms. With this in thoughts, we created a full record of all 68Dividend Aristocrats.

You possibly can obtain the complete Dividend Aristocrats record, with vital monetary metrics like dividend yields and P/E ratios, by clicking on the hyperlink under:

The inventory can also be on the unique record of Dividend Kings.

PPG’s exceptional dividend consistency provides it broad enchantment to the extra conservative members of the dividend progress investing group.

Certainly, the corporate has a really protected dividend cost with room for regular dividend will increase annually, because of its sturdy enterprise mannequin. That is nonetheless very a lot the case right now.

This text will analyze PPG’s funding prospects intimately and decide whether or not the corporate deserves a purchase advice at present costs.

Enterprise Overview

PPG Industries was initially based in 1883 as a producer and distributor of glass. PPG stands for Pittsburgh Plate Glass, which is a reference to the corporate’s authentic operations.

Over time, PPG has made exceptional strides in changing into an trade chief within the paints and coatings trade.

With annual revenues of about $18 billion, PPG’s solely rivals of comparable dimension are fellow Dividend Aristocrat Sherwin-Williams (SHW), in addition to Dutch paint firm Akzo Nobel (AKZOY).

PPG Industries has grown to such a powerful dimension because of its worldwide working presence and give attention to expertise and innovation.

Its analysis and growth focus is a key differentiator between PPG and different paint & coatings firms. Due to its heavy R&D investments, PPG has grown to be a market chief right now.

As well as, PPG has a protracted historical past of accretive acquisitions which have helped it develop over time. PPG has been very busy in simply the previous couple of years, securing acquisitions that may add almost $2 billion in income to its prime line, and also will bolster its worldwide presence. It has a really lengthy historical past of profitable acquisitions, which means it could possibly develop not solely organically, but in addition by buying scale and market share.

PPG reported fourth-quarter and full 12 months outcomes on January nineteenth, 2023.

Supply: Investor presentation, web page 4

Income was flat for the quarter, however up 5.4% to $17.7 billion for 2022. Adjusted earnings-per-share fell to $1.22 from $1.26 for the quarter. Full 12 months earnings-per-share of $6.05 in contrast unfavorably to $6.77 in 2021.

PPG has developed unimaginable model loyalty over time, which has helped it to endure the rising enter price going through the corporate in recent times. PPG has largely offset these prices by elevating costs on its merchandise with out seeing a big drawdown in quantity. As you’ll be able to see, pricing added 11% to quarterly outcomes with quantity down a mid-single-digit determine.

Our preliminary estimate for 2023 is $6.99 in earnings-per-share.

Development Prospects

By and huge, an organization’s capacity to extend revenues and income is a operate of its capital allocation.

PPG has spent billions of {dollars} in recent times shopping for its subsequent technology of progress. It tries to keep up a considerably balanced capital allocation technique, however it’s also not afraid to spend massive on acquisitions when alternatives current themselves.

PPG has spent far more of its deployed money on share repurchases than its rivals, which has been a significant supply of earnings-per-share progress over time.

Additionally it is probably that mergers and acquisitions shall be a continued focus for PPG transferring ahead, as the corporate strikes again in the direction of its core competency of portfolio optimization.

Acquisitions have been a key progress driver for PPG for a few years. That progress has come at a value, particularly a rise within the firm’s debt.

Supply: Investor Presentation, web page 8

PPG is now nearly completely a coatings enterprise. The transformation in recent times away from legacy companies like glass and chemical substances has left the corporate with a powerful portfolio of coatings merchandise that collectively generate almost $18 billion in annual income.

PPG acknowledged years in the past that its future progress can be in coatings, and has positioned itself accordingly.

Its observe report means that its underlying enterprise is prone to proceed rising at a passable charge for the foreseeable future. Previously decade, the corporate has grown its earnings-per-share at a mean charge of just below 6%.

PPG has been an elite progress inventory for a very long time. This progress has not been linear, as there have been ups and downs from 12 months to 12 months, however over time, PPG has delivered spectacular progress.

Given its very sturdy fundamentals and its give attention to coatings, we consider buyers can moderately anticipate 8% adjusted earnings-per-share progress from PPG Industries by full financial cycles.

Nonetheless, PPG’s efficiency is prone to undergo during times of financial recession. The excellent news is that we’d probably see such an occasion as a shopping for alternative for this high-quality enterprise.

Aggressive Benefits & Recession Efficiency

PPG enjoys plenty of aggressive benefits. It operates within the paints & coatings trade, which is economically enticing for a number of causes. First, these merchandise have high-profit margins for producers.

In addition they have low capital funding, which ends up in important money stream. PPG has put this important money stream to make use of over time, as mentioned above.

Given all this, it is sensible that there are simply two coatings firms (Sherwin-Williams and PPG Industries) on the Dividend Aristocrats record.

With that stated, the paint and coatings trade is just not very recession-resistant as a result of it is determined by wholesome housing and building markets. This influence may be seen in PPG’s efficiency in the course of the 2007-2009 monetary disaster:

• 2007 adjusted earnings-per-share: $2.52
• 2008 adjusted earnings-per-share: $1.63 (35% decline)
• 2009 adjusted earnings-per-share: $1.02 (37% decline)
• 2010 adjusted earnings-per-share: $2.32 (127% improve)

PPG’s adjusted earnings-per-share fell by greater than 50% over the last main recession and took two years to get better.

As PPG’s 2020 outcomes confirmed, the decline in new building is the dominant issue for PPG throughout a recession. The 2020 recession was no completely different, as PPG confronted manufacturing facility shutdowns and severely diminished demand from shoppers, though that proved to be transitory.

Whereas the long-term prospects of this Dividend Aristocrat stay shiny, buyers needs to be prepared to just accept volatility in a recession.

If something, a recession and corresponding decline in PPG’s share worth would permit buyers to buy extra shares of this inventory at a way more enticing worth.

Valuation & Anticipated Whole Returns

We’re forecasting earnings-per-share of $6.99 for the fiscal 12 months of 2023, placing the price-to-earnings ratio at 19.2. That is simply above our truthful worth estimate of 19 occasions earnings, which means PPG is barely overvalued right now.

As such, we anticipate a modest 0.2% headwind to complete returns from valuation within the coming years.

In complete, we undertaking that PPG will return 9.5% yearly by 2028, stemming from 8% earnings progress and the beginning yield of 1.9%, partially offset by a 0.2% headwind from a number of contraction. Given this, we proceed to charge PPG a maintain, although we’d discover the title extra enticing on a slight pullback.

Remaining Ideas

PPG Industries has most of the traits of a really high-quality enterprise. It has a confirmed enterprise mannequin and has generated sturdy progress over the previous a number of years.

It additionally has a big worldwide presence and a number of catalysts for future progress. Lastly, it has elevated its dividend for 51 years.

Nonetheless, the inventory is barely overvalued.

PPG’s dividend outlook is exemplary and we see many extra years of dividend will increase on the horizon. That stated, we propose ready for a pullback earlier than shopping for.

In case you are eager about discovering high-quality dividend progress shares appropriate for long-term funding, the next Certain Dividend databases shall be helpful:

The most important home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: