In this special 5-part series of articles, Bob Ciura counts down his current five top "Buy & Hold Forever" dividend stocks. The editor of Sure Dividend continues his review with a look at PPG Industries Inc. (PPG).
PPG Industries is a Dividend King with a solid yield, consistent dividend growth, and high expected returns in the coming years. The company was originally founded in 1883 as a manufacturer and distributor of glass. Today, it is an industry leader in the paints and coatings industry.
With annual revenues of about $18 billion, PPG’s only competitors of similar size are fellow Dividend Aristocrat Sherwin-Williams Co. (SHW), as well as Dutch paint company Akzo Nobel NV (AKZOY).
Recent Events
On July 18, PPG Industries announced second-quarter results. For the quarter, revenue decreased 1.6% to $4.79 billion, while adjusted EPS of $2.50 rose 11% from the same quarter last year. Organic revenue was flat compared to the prior year. Higher selling prices were offset by divestitures and a headwind from foreign currency exchange, while volume was flat.
For 2024, the company expects organic sales in a range of flat-to-up low single-digits and adjusted EPS in a range of $8.15 to $8.30. At the midpoint, EPS would increase 7.3% in 2024 from the prior year.
Growth Prospects
In the past decade, the company has grown its EPS at an average rate of just under 8%. Acquisitions have been a key growth driver for PPG for many years.
PPG is now almost exclusively a coatings business. The transformation in recent years away from legacy businesses like glass and chemicals has left the company with a portfolio of coatings products that collectively generate nearly $18 billion in annual revenue.
Valuation & Expected Returns
Future returns will consist of the stock’s EPS growth, changes in the valuation multiple, and dividends.
PPG stock now trades for 15.3 times our EPS estimate for this year of $8.23. With the price-to-earnings ratio below our long-term fair value estimate of 19, the rising P/E multiple could add 4.4% to annual returns over the next five years.
We also expect PPG to increase EPS by 8% per year going forward.
PPG is also a dividend growth company. On July 18, PPG raised its quarterly dividend by 4.6% to $0.68 per share, extending the company’s dividend growth streak to 53 consecutive years. The stock recently yielded 2.1%. As a result, total returns could reach 14.1% per year over the next five years, making PPG a buy.
