The board of PPG Industries, Inc. (NYSE:PPG) has announced that it will be increasing its dividend on the 10th of September to US$0.59. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.
PPG Industries' Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. The last dividend was quite easily covered by PPG Industries' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to expand by 46.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.
PPG Industries Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from US$1.10 in 2011 to the most recent annual payment of US$2.36. This works out to be a compound annual growth rate (CAGR) of approximately 7.9% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
PPG Industries May Find It Hard To Grow The Dividend
Investors could be attracted to the stock based on the quality of its payment history. PPG Industries hasn't seen much change in its earnings per share over the last five years. Growth of 0.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
We Really Like PPG Industries' Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, PPG Industries has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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