The Sherwin-Williams Company (NYSE:SHW) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 15th of August in order to receive the dividend, which the company will pay on the 6th of September.
Sherwin-Williams's upcoming dividend is US$1.13 a share, following on from the last 12 months, when the company distributed a total of US$4.52 per share to shareholders. Looking at the last 12 months of distributions, Sherwin-Williams has a trailing yield of approximately 0.9% on its current stock price of $519.76. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Sherwin-Williams has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Sherwin-Williams paying out a modest 31% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 20% of its cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Sherwin-Williams's earnings per share have risen 11% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sherwin-Williams has delivered 12% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy Sherwin-Williams for the upcoming dividend? Sherwin-Williams has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Sherwin-Williams, and we would prioritise taking a closer look at it.
Curious what other investors think of Sherwin-Williams? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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