Last update on 2024-06-27

Sherwin-Williams (SHW) - Dividend Analysis (Final Score: 7/8)

Comprehensive analysis of Sherwin-Williams (SHW) dividend policies scoring 7 out of 8. Insights into dividend stability, growth rate, and financial sustainability.

Short Analysis - Dividend Score: 7

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

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 represents the dividend income an investor would receive for every dollar invested in the stock. It is important for investors seeking steady income.

Sherwin-Williams (SHW) has a current dividend yield of 0.7759%, which is significantly lower than the industry average of 2.37%. Over the last 20 years, SHW's dividend yield has seen a generally downward trend from 1.7848% in 2003 to its current 0.7759%. The significant decline can be partly attributed to the strong appreciation in the company’s stock price, which increased from $11.58 in 2003 to $311.9 in 2023. The consistent rise in stock price without a proportional increase in dividend payouts has led to the lower yield despite an increase in dividends per share from $0.2067 in 2003 to $2.42 in 2023. While a lower dividend yield may dissuade income-focused investors, it can also be interpreted positively as the company has been retaining more earnings for reinvestment into growth opportunities.

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

The Dividend Growth Rate measures the pace at which a company's dividend payments to shareholders increase over a period. A rate higher than 5% is considered healthy and signifies financial robustness.

As we evaluate Sherwin-Williams (SHW)'s Dividend Growth Rate over the last 20 years, we notice substantial variations in the dividend per share ratio each year. Notably, we observe an extreme fluctuation in certain years such as 2003 (4.1849%) compared to 2020 (77.8732%) and 2021 (-17.9104%). This inconsistency can reflect varied company strategy or external financial factors affecting dividend payments. While there are years of very high growth (up to 77.8732%), the occasional negative or low figures ($2007$ at 26.011%) dilute the overall geometric average that reaches 13.98%. Despite this average being above 5%, the high volatility and negative growth instances like in 2021 might alarm prudent investors. Hence, while the average growth rate seems favorable, the trend’s consistency may not be regarded as entirely reliable or stable.

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

The payout ratio measures the proportion of earnings a company pays to its shareholders in the form of dividends. A payout ratio lower than 65% is considered sustainable because it shows the company retains a majority of its earnings for growth, debt repayment, and other investments.

The average payout ratio for Sherwin-Williams (SHW) over the last 20 years is 28.45%. This is well below the threshold of 65%, indicating a conservative and sustainable dividend policy. Such a low payout ratio suggests that Sherwin-Williams prioritizes retaining earnings for growth and operational resilience. Over the analyzed period, the yearly payout ratios also remained consistently below the 65% threshold, ranging from a low of 18.21% in 2017 to a high of 37.60% in 2009. This trend underscores the company’s disciplined approach to dividend distributions, which bodes well for long-term investors.

Dividends Well Covered by Earnings?

This criterion assesses whether a company can sustain its dividend payments from its earnings. It compares earnings per share (EPS) with dividend per share (DPS). A high ratio indicates that dividends are well covered by earnings.

Examining the history of Sherwin-Williams' EPS and DPS, we observe that the EPS has generally increased over the years, with some fluctuation. For example, in 2022, EPS was $9.35 compared to $0.75 in 2003. Similarly, DPS rose from $0.21 in 2003 to $2.42 in 2022. The trend in the dividend payout ratio—i.e., the proportion of earnings paid out as dividends—remains below 40%, often around 25-35%, demonstrating strong dividend coverage by earnings. For instance, in 2022, the ratio was about 25.87%, up from 27.4% in 2003 and generally fluctuated within a narrow range, thereby showing sustainable payout levels. Thus, Sherwin-Williams exhibits a stable and healthy dividend coverage trend, indicating that its dividends are well-supported by its earnings throughout the years. Overall, this is a good trend for investors seeking reliable income from dividends.

Dividends Well Covered by Cash Flow?

Explain the criterion for Sherwin-Williams (SHW) and why it is important to consider

Dividends being well-covered by cash flow is essential because it indicates a company's ability to sustain its dividend payments without compromising its financial health. It is a measure of dividend safety. If free cash flow adequately covers dividends, it implies that the company generates sufficient cash to reward shareholders while maintaining its operations.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years are crucial for income-seeking investors because they provide a predictable and reliable income stream. Investors who rely on dividend payments for their income prefer companies that can sustain or grow their dividends, even during economic downturns or periods of financial stress.

Over the past 20 years, Sherwin-Williams (SHW) has generally exhibited a stable and increasing dividend per share. Notably, there have been significant milestones, such as a jump from $1.1467 in 2016 to $2.68 in 2017, indicating strong earnings growth. However, stability is not without flaws. For income-seeking investors, attention must be paid to the drop from $2.68 in 2017 to $2.2 in 2021—the only year where dividends fell by more than 20%. Even though this could raise red flags, the subsequent recovery to $2.42 in 2023 reassures that the company can bounce back. Therefore, while there is an isolated instance of volatility, the broad trend remains positive.

Dividends Paid for Over 25 Years?

Dividends paid for over 25 years is crucial as it indicates the company's commitment to returning value to its shareholders and demonstrates financial stability and consistent profitability over an extended period.

Sherwin-Williams has paid dividends consistently for over 25 years, from 1998 to 2023, increasing from $0.1493 per share in 1998 to $2.42 per share in 2023. This persistence in distributing profits to shareholders illustrates the company's robust financial health and strong cash flow management. The increasing trend showcases Sherwin-Williams' ability to generate reliable revenue and its prudent approach towards rewarding its investors. The upward trajectory of dividends per share, including significant jumps like from $1.1467 in 2018 to $1.5067 in 2019 and from $2.2 in 2020 to $2.68 in 2021, reflects its ongoing growth and profitability. This trend is an excellent indicator of a fundamentally strong company committed to sharing its success with investors.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Sherwin-Williams (SHW) and why it is important to consider

Sherwin-Williams has demonstrated a reliable trend of stock repurchases over the past 20 years. The number of shares has decreased from 440,784,956 in 2003 to 255,400,000 in 2023. This demonstrates a consistent effort to repurchase stocks, particularly notable in the years 2004-2015 and 2019-2023. This trend is favorable with an average annual reduction rate of 2.6661%. A consistent share repurchase strategy can often signify strong cash flows and management's confidence in the company's future, potentially leading to higher shareholder value. The increase in this repurchase rate shows a strong positive trend in recent years.