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Better Dividend Aristocrat: Sherwin-Williams Or PPG?

PPG Industries (PPG) is a Dividend Aristocrat. It has increased its dividend for 44 years in a row, which is certainly an impressive feat.

That said, there may be a better Dividend Aristocrat to buy, and it happens to be one of PPG’s biggest competitors.

Sherwin-Williams (SHW) has 38 consecutive years of dividend increases under its belt.

PPG has a higher dividend yield than Sherwin-Williams right now, but Sherwin-Williams has stronger growth potential going forward.

This article will discuss why Sherwin-Williams is the better Dividend Aristocrat, in a matchup of two giants of the paint and coatings industry.

Business Overview

Winner: Sherwin-Williams

Sherwin-Williams and PPG compete directly in the paint industry.

Sherwin-Williams operates four business segments:

  • Paint Stores (66% of revenue)
  • Consumer (13% of revenue)
  • Global Finishes (16% of revenue)
  • Latin America Coatings (5% of revenue)

The Paint Stores business is by far Sherwin-Williams’ largest. It owns more than 4,000 stores. It also provides protective and marine services, automotive finishes, and product finishes.

Source: 2016 Financial Community Presentation, slide 5

Sherwin-Williams generated 4.6% revenue growth in 2016. Diluted earnings-per-share increased 7.5% for the year, to $11.99.

PPG supplies paints just like Sherwin-Williams, along with other manufactured products including coatings, optical products, and specialty materials.

It operates three segments:

  • Performance Coatings (58% of revenue)
  • Industrial Coatings (39% of revenue)
  • Glass (3% of revenue)

PPG serves the industrial, transportation, consumer products, and construction industries. It generates approximately $15 billion in annual sales.

It has significantly shifted its business model toward Performance Coatings in recent years. This transformation worked, as the Performance Coatings segment posted 10% compound annual growth from 2005-2016.

Source: March 2017 Investor Presentation, page 11

Unfortunately, growth has slowed more recently.

PPG’s growth was more muted than Sherwin-Williams’ in 2016. PPG reported flat revenue for the year, along with 7% growth in adjusted earnings.

Both companies have strong positions in the industry, but Sherwin-Williams is a more consistent performer.

Competitive Advantages & Recession Performance

Winner: Sherwin-Williams

Sherwin-Williams has a more recession-resistant business model, due in...