Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see The Sherwin-Williams Company (NYSE:SHW) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 15th of August will not receive the dividend, which will be paid on the 6th of September.
Sherwin-Williams’s next dividend payment will be US$1.13 per share. Last year, in total, the company distributed US$4.52 to shareholders. Calculating the last year’s worth of payments shows that Sherwin-Williams has a trailing yield of 0.9% on the current share price of $519.76. If you buy this business for its dividend, you should have an idea of whether Sherwin-Williams’s dividend is reliable and sustainable. So we need to investigate whether Sherwin-Williams can afford its dividend, and if the dividend could grow.
View our latest analysis for Sherwin-Williams
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. That’s why it’s good to see Sherwin-Williams paying out a modest 31% of its earnings. A useful secondary check can be to evaluate whether Sherwin-Williams generated enough free cash flow to afford its dividend. What’s good is that dividends were well covered by free cash flow, with the company paying out 20% of its cash flow last year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we’re glad to see Sherwin-Williams’s earnings per share have risen 11% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Sherwin-Williams has delivered 12% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Has Sherwin-Williams got what it takes to maintain its dividend payments? Sherwin-Williams has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It’s a promising combination that should mark this company worthy of closer attention.
Curious what other investors think of Sherwin-Williams? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.