PPG Industries Dividend Stock Analysis (PPG)

Description

Sector: Basic Materials
Industry: Specialty Chemicals

PPG Industries is one of the oldest and largest global producers of coatings and glass. PPG divides its business into 3 segments: Performance Coatings (48%), Industrial Coatings (45%) and Glass (7%).

The company sells its products through company owned stores, independent distributors and directly to customers.

The Performance Coatings segment includes the refinish, aerospace, marine, and architecture businesses.

The Industrial Coatings segment includes automotive original equipment manufacture (OEM), packaging coatings, industrial coatings, and specialty coatings and materials done custom for customers.

The Glass segment produces flat and fiber glass for commercial and residential construction.

SWOT Analysis For PPG Industries

Strengths

PPG Industries is the largest manufacturer of coatings in the world. It excels at being a specialty and services company to customers in a wide variety of industries including construction and transportation.

The company has been moving away from commodified businesses and increasing its product mix toward coatings. Its ability to have working relationships with specialty clients allows the company to compete less on price and more on quality and performance.

Its competitive advantages include outstanding management and strong brands such as Glidden, Comex, Olympic, PPG Pittsburgh Paints, and Liquid Nails.

Weaknesses

Much of PPG profits are tied to cyclical end markets such as automotive, housing, and construction. In addition, products such as paint and glass are not specialized and require the company to compete essentially on price. This puts downward pressure on profit margins.

Opportunities

PPG has an aggressive acquisition strategy that has involved acquiring dozens of businesses over the past 20 years. This has led to accelerated earnings growth. This strategy has also demonstrated management’s ability to acquire and integrate businesses that were a good fit for PPG.

Threats

Sales are highly dependent on the global economy and health of its end markets. Reliance on energy and certain raw materials make PPG susceptible to increased costs that may or may not be able to be passed on to customers. Health and safety factors such as regulations and lawsuits are always a concern in the chemicals industry.

Dividend Analyzer Checklist

(updated November 2016)

Dividend Safety Score (20/33 points)

Dividend Per Share (ttm): $1.52
Dividend Payout Ratio (ttm):  48%
Dividend Per Share (10 Year Growth): 4.3%
Cash From Operations (CFO) Per Share (ttm):  $5.97
CFO Dividend Coverage (CFO / DPS):  3.9   (4/6 points)
Free Cash Flow (FCF) Per Share (ttm):   $4.21
FCF Dividend Coverage (FCF / DPS):  2.8  (5/6 points)
Net Financial Debt:  $3429 M
Total Assets: $16490 M
Net Financial Debt / Total Assets:  21%  (7/12 points)
Net Financial Debt to EBITDA (ttm):  245%
Total Liabilities to Assets Ratio (Qtr.):   69%
Piotroski Score (1-9) (TTM): 4/9 points)

Profitability & Growth Score (28/33 points)

Revenue (10 Year Growth) *CAGR > 4.14%:  5.4%  (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%:  12.2%  (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%:  5.6%  (6/6 points)
Operating Earnings Yield (ttm):  9.0%  (5/7 points)
Net Income (ttm):   $847 M
Gross Profit (ttm):   $6975 M
Total Assets:  16490 M
Gross Profitability Ratio = GP / Total Assets:   42%  (9/12 points)
Cash Return On Invested Capital (CROIC)(tttm):  12%
Return on Invested Capital (ROIC):  15%
Return on Invested Capital (ROIC) (5 Year Median):  15%
Return on Invested Capital (ROIC) (10 Year Median):  13%

Valuation Score (12/34 points)

Free Cash Flow Yield (ttm):   4.4%   (5/9 points)
EV to EBIT (ttm):   20.8  (0/9 points)
EV to EBITDA (ttm):  15.1  (3/9 points)
PE10:   23.0  (4/7 points)
Price to Sales Ratio (ttm): 1.6
Price to Book Value (ttm):  4.9
Price to Earnings Ratio (P/E) (ttm):  29.7

TOTAL POINTS – (60/100) (50 is an average score)

*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.

Conclusion

(updated November 2016)

Type of Investor / Recommendation

Large Diversified Dividend Portfolios / Can Be Considered
Looking For Exposure to Basic Material Sector / Good Option
Deep Value Investors / Avoid

PPG Industries is ranked #69 (out of 247) overall and #6 (out of 23) in the Basic Material sector by the Dividend Analyzer.

The above average score is attributable to outstanding Dividend Safety and Profitability & Growth Scores. PPG should be considered for diversified dividend portfolios looking for exposure to Basic Materials.

Portfolio Position Disclosures:
DVB Foundation Portfolio – None
DVB Dividend Growth – None
DVB High Income – None
Arbor Asset Allocation Model Portfolio (AAAMP) – None

Disclaimer:
While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.