Friday, March 14, 2008

Sherwin-Williams Company Dividend Analysis

The Sherwin-Williams Company engages in the manufacture, distribution, and sale of paints, coatings, and related products to professional, industrial, commercial, and retail customers primarily in North and South America. It operates in three segments: Paint Stores, Consumer, and Global.

It is a dividend aristocrat as well as a major component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an annual average total return of 12.10 % to its shareholders. The company has managed to deliver an impressive 12% average annual increase in its EPS through organic growth and share buybacks. Management has consistently bought back 4.90% of outstanding shares each year for the past 10 years. Without the buybacks the growth in EPS would have been 6.90% annually.

The ROE has been increasing steadily over our study period, rising from 17% in 1998 to 30% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 12.4% annually, which matches the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling every 6 years. If we look at historical data, going as far back as 1985, SHW has actually managed to double its dividends every six years.

If we invested $100,000 in SHW on December 31, 1997 we would have bought 3757 shares. Your quarterly dividend income would have been $420.78 in February 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1438.92 by November 2007 and $1606.85 in February 2008. For a period of 10 years, your quarterly dividend income has increased by 212 %. If you reinvested it though, your quarterly dividend income would have increased by 282%.

The dividend payout has consistently remained under 35% over the past 10 years. This is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I believe that SHW is attractively priced at the moment with its low price/earnings multiple of 11.10 and above-average yield at 2.70%.
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  1. That is an interesting analysis of Sherwin Williams. I used to paint houses for 7 years and SW was the brand of choice. They have a solid product with a strong track record. I guess I never thought that they offered a nice opportunity for dividends.

    Especially when you consider the average home is repainted every 4 to 6 years.

  2. Thanks a lot for your comment thelocomono. It seems that even if the housing crisis does affect the company to a certain extent, in the long run its customers would keep buying paint every so often.

  3. If the average house is repainted every 4 to 6 years with Sherwin Williams paint, How could this company be the "brand of choice"
    I'll stay with the regional paint manufacter, use their top line paint and keep my money in my region.

  4. L123..,

    Which regional paint company are you referring to?
    If I owned a house I would spend my paint money for quality paint. I would not care about the geographical location of the producer.


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