PPG Industries, Inc. (NYSE:PPG) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase PPG Industries’ shares on or after the 17th of February will not receive the dividend, which will be paid on the 11th of March.
The company’s upcoming dividend is US$0.59 a share, following on from the last 12 months, when the company distributed a total of US$2.36 per share to shareholders. Based on the last year’s worth of payments, PPG Industries has a trailing yield of 1.6% on the current stock price of $149.9. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! 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 PPG Industries paying out a modest 38% of its earnings.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It’s encouraging to see PPG Industries has grown its earnings rapidly, up 24% a year for the past five years. PPG Industries is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
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, 10 years ago, PPG Industries has lifted its dividend by approximately 7.5% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is PPG Industries an attractive dividend stock, or better left on the shelf? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly – this can sometimes signal management is focused on the long term future of the business. Overall, PPG Industries looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
On that note, you’ll want to research what risks PPG Industries is facing. Our analysis shows 1 warning sign for PPG Industries and you should be aware of it before buying any shares.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.