Last update on 2024-06-27

PPG Industries (PPG) - Dividend Analysis (Final Score: 7/8)

Assess the performance and stability of PPG Industries (PPG) dividend policy through an 8-criteria scoring system, achieving a notable score of 7/8.

Short Analysis - Dividend Score: 7

We're running PPG Industries (PPG) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis for PPG Industries (PPG) scored 7 out of 8 based on several criteria. These criteria include evaluating PPG's dividend yield, growth rate, payout ratio, coverage by earnings and cash flow, stability, historical record, and stock repurchases over the past 20 years. Although PPG's current dividend yield is lower than the industry average, the company has a consistent record of increasing dividends for over two decades. The payout ratio remains sustainably below 65%, and both earnings and free cash flows usually cover dividends well. Furthermore, PPG has a strong history of paying dividends for over 25 years and has shown reliable stock repurchasing habits. Overall, PPG presents a strong dividend policy with minor fluctuations in coverage and yield.

Insights for Value Investors Seeking Stable Income

Based on the scoring criteria, PPG Industries appears to be a stable and reliable dividend-paying company. While the current yield may not be attractive to income-focused investors, its consistent increase in dividends over the past two decades and sound reinvestment strategy make it suitable for long-term growth investors. Therefore, it is worth considering for those seeking dependable dividend growth and potential capital gains.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures the dividend income relative to the stock price, which is crucial for income-focused investors.

PPG Industries' (PPG) current dividend yield of 1.6984% is lower than the industry average of 2.37%. Historically, PPG's dividend yield has also varied quite significantly, peaking at 4.9258% in 2008 during a considerable market downturn, when stock yields generally shoot up due to plummeting stock prices. Observing the company's dividend yield and stock price correlation, the most consistent yield trend has been below the industry average, suggesting that PPG has typically yielded less. For instance, in the 2010s, PPG's dividend yield has predominantly floated around 1-2%, notably when stock prices were on an upward trajectory - showcasing that as PPG stock value increased, dividend yields decreased as dividends haven't increased at the same pace as the stock price. This trend indicates that the company might be more growth-focused, retaining earnings for potential reinvestment instead of paying them out as dividends. Given this lower yield, PPG might not be as attractive to income-focused investors but could still hold appeal for those more interested in capital gains as stock prices rise.

Average annual Growth Rate higher than 5% in the last 20 years?

The dividend growth rate is a critical measure indicating how much a company's dividend payments have increased over time. A consistent growth rate above 5% is often seen as a positive sign of a company's financial health, profitability, and shareholder value. It can indicate that the company is generating more earnings and has a sustainable payout ratio, which leads to more attractive returns for long-term investors.

The Dividend Ratio data for PPG Industries from 2003 to 2023 shows significant fluctuation. Despite this volatility, the average dividend ratio over this period stands at 5.41. Comparing annual values, some years showed remarkable spikes (e.g., 6.8063 in 2007 and 10.2473 in 2016). These variations suggest mixed stability in dividend policy. To determine if the growth rate exceeds 5%, further detailed annual growth rate calculations are necessary. However, the overall positive trend reflected by the average and the spikes in certain years indicate a relatively good performance in terms of dividend growth.

Average annual Payout Ratio lower than 65% in the last 20 years?

Investigating whether the average payout ratio of a company remains below a certain threshold, such as 65%, over a long period (e.g., 20 years) is crucial in understanding its dividend sustainability. A lower payout ratio indicates that the company is retaining more earnings, which can be reinvested for growth, ensuring the continuity and potential increase of dividends in the future.

The average payout ratio of PPG Industries over the last 20 years is calculated to be approximately 43.87%. This is well below the 65% threshold, indicating that PPG Industries has generally maintained a conservative and sustainable approach to dividend payments. Such a trend suggests that the company retains a significant portion of its earnings for reinvestment, operations, and potential growth opportunities. Notably, while most years exhibit a disciplined payout ratio, the year 2009 stands out with an unusually high ratio of 104.91%, likely driven by external factors such as the financial crisis. Despite this anomaly, the overall trend remains robust, highlighting PPG's capacity to sustain and potentially grow its dividend payouts.

Dividends Well Covered by Earnings?

Why it's important for dividends to be covered by earnings

Dividends being covered by earnings showcase a company's ability to generate enough profit to sustain the dividend payouts without resorting to its cash reserves or taking on debt. This is a key indicator of financial health, stability, and the sustainability of dividend distribution..

Dividends Well Covered by Cash Flow?

This criterion assesses whether the company's dividends are adequately covered by its free cash flow. It is crucial because it shows the company's ability to generate enough cash to sustain dividend payments without jeopardizing financial stability.

Analyzing the ratio of free cash flow to dividend payout for PPG Industries (PPG) from 2003 to 2023, we observe fluctuations in the percentage coverage. For most years, the ratio remains significantly above 0.25, suggesting that dividends are generally well-covered by cash flows. However, the years with ratios below this can raise red flags, indicating potential unsustainability in those periods. Particularly notable is 2020, where the ratio spiked to 1.28, potentially due to temporary operational efficiencies or extraordinary cash flow generation. Overall, while there are some periods of concern, the consistent trend of maintaining this ratio well above 1 in recent years points towards a strong ability to cover dividends with free cash flow. This trend is positive for long-term dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over a long period demonstrate a company's consistent profit generation and financial health, which is crucial for income-seeking investors.

The dividend per share for PPG Industries (PPG) has shown a year-over-year increase over the past two decades, rising from $0.865 in 2003 to $2.54 in 2023. Each year’s dividend has either remained stable or increased compared to the previous year, demonstrating a stable and growing payout. Notably, there hasn't been a single instance where the dividend decreased by more than 20% in any given year. This trend ensures income stability and makes PPG Industries a reliable choice for income-seeking investors.

Dividends Paid for Over 25 Years?

The criterion checks if a company has been consistently paying dividends for over 25 years.

PPG Industries (PPG) has a remarkable record of paying dividends for over 25 years, from 1998 to 2023. Starting with a dividend per share of $0.71 in 1998, the company has steadily increased its dividend to $2.54 per share by 2023. This trend showcases PPG's financial stability and commitment to rewarding shareholders, which is a positive indicator for long-term investors. Not only does this highlight the company's consistent generation of free cash flows, but it also builds investor confidence, reflecting a well-managed and resilient business model. The upward trend in the dividend payouts is impressive and suggests solid financial health and a shareholder-friendly management approach. This is undoubtedly a good trend for this criterion, reinforcing PPG's reputation as a reliable dividend-paying stock.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to a company's consistent buyback of its own shares over a specific period, typically enhancing shareholder value.

The data provided indicates that PPG Industries has reduced its number of outstanding shares from 341.9 million in 2003 to 236 million in 2023. Over this 20-year period, there have been several years of significant share repurchases, notably post-2009, where the number of shares decreased more steadily. The most notable reductions occurred between 2011 and 2018, with fewer dramatic declines in recent years. The average repurchase rate of -1.8155% over these two decades signifies a positive long-term trend for investors, as consistent buybacks often suggest strong cash flow and a commitment to returning value to shareholders. Therefore, the trend of reliable stock repurchases appears favorable.