Readers hoping to buy The Sherwin-Williams Company (NYSE:SHW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 28th of February will not receive this dividend, which will be paid on the 13th of March.
Sherwin-Williams's next dividend payment will be US$1.34 per share. Last year, in total, the company distributed US$5.36 to shareholders. Calculating the last year's worth of payments shows that Sherwin-Williams has a trailing yield of 0.9% on the current share price of $573.34. If you buy this business for its dividend, you should have an idea of whether Sherwin-Williams's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Sherwin-Williams paying out a modest 27% of its earnings. A useful secondary check can be to evaluate whether Sherwin-Williams generated enough free cash flow to afford its dividend. The good news is it paid out just 21% of its free cash flow in the 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Sherwin-Williams's earnings per share have risen 13% 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, ten years ago, Sherwin-Williams has lifted its dividend by approximately 14% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
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.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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