Stock Analysis

PPG Industries (NYSE:PPG) Is Increasing Its Dividend To US$0.59

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NYSE:PPG
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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 1.4%, which is below the industry average.

See our latest analysis for PPG Industries

PPG Industries' Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, PPG Industries' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 19.5%. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.

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NYSE:PPG Historic Dividend August 3rd 2021

PPG Industries Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The first annual payment during the last 10 years was US$1.10 in 2011, and the most recent fiscal year payment was US$2.36. This works out to be a compound annual growth rate (CAGR) of approximately 7.9% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 4.6% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, PPG Industries has the option to increase the payout ratio to return more cash to shareholders.

PPG Industries Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for PPG Industries that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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What are the risks and opportunities for PPG Industries?

PPG Industries, Inc. manufactures and distributes paints, coatings, and specialty materials worldwide.

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Rewards

  • Trading at 5.6% below our estimate of its fair value

  • Earnings are forecast to grow 15.37% per year

Risks

  • Debt is not well covered by operating cash flow

  • Profit margins (5.8%) are lower than last year (8.5%)

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