A while back I wrote a blog post titled, “Dividend Aristocrats You Never Heard Of.” The point of the article was to introduce new and seasoned dividend investors to potential new picks for their dividend growth portfolios that get little to no attention among the financial blogging community. Sure, we already know everything there is to know about The Coca-Cola Company (KO), Johnson & Johnson (JNJ), Unilever plc (UL), Caterpillar Inc. (CAT), Emerson Electric Co. (EMR) and the like. Their dividend histories and stock performances speak for themselves.
The reality is that there are a great number of high quality dividend paying companies that exist, but for whatever reason, certain companies, that also have a great dividend paying history never get mentioned nor find themselves in various dividend growth portfolios. Among some of those names mentioned in the article were W.W. Grainger, Inc. (GWW), Bemis Company, Inc. (BMS), CR Bard Inc. (BCR) and V.F. Corporation (VFC), each of which have lengthy dividend raise histories and decent to excellent dividend growth rates too. With that being said, I’d like to do an overview of some additional dividend aristocrats that have each raised their dividends for at least twenty five years and deserve, at the very least, some consideration as a potential investment for a long term dividend growth portfolio.
One of the first high quality dividend names that seems to fall under the radar is The Sherwin-Williams Company (SHW). Founded in 1866 and based in Cleveland, OH, SHW develops, manufactures, distributes paints and coatings for commercial, industrial and retail customers. We all know there’s not much that’s too exciting about paint, except maybe watching it dry, but it’s these types of “boring” business that sometimes offer the best and most reliable returns, whether in the form of dividends or gradual capital appreciation. We all know Warren Buffett has an affinity for predicable businesses with wide moats which is why Berkshire Hathaway Inc. (BRK-A) wholly owns paint manufacturer Benjamin Moore & Co. Does paint belong in your dividend portfolio?
Currently yielding 1.09% with a low payout ratio of 24.5% based on an EPS of 10.92, SHW has a long dividend raise history going back 36 years. Based on current cash flow the dividend of SHW is considered to be safe with plenty of room for future raises. In fact, SHW has a pretty impressive ten year annualized dividend growth rate of 12.46%. The current PE of SHW stands at 25.2 which is slightly higher than its five year average of 23.6. Forward PE looks a lot more enticing at 19.0. Of course a four star rating from Morningstar doesn’t hurt either. You know the saying. Sometimes you have to pay up for quality or wait a bit for share price to come down a bit.
Another high quality dividend aristocrat is PPG Industries, Inc. (PPG). Founded in 1883 and headquartered in Pittsburgh, PA, PPG, like SHW, also manufactures coatings and specialty paints along with glass products, sealants and cleaners. Another “yawn” business that is predicable and reliable in terms of operations. PPG has a long dividend raise history going back 42 years and currently yields 1.55% with a low payout ratio of 25.1% based on an EPS of 5.73. Like SHW, this dividend appears to be safe with further room for growth. In fact, the ten year annualized dividend growth rate for PPG is 3.88%. Not as impressive as SHW, yet still shows us consistent growth over multiple decades. From a valuation perspective, PPG sports a current PE of 23.0 which is still slightly higher than its five year average of 20.1. Forward PE for this stock looks better at 14.4.
Going back to the Warren Buffett, Berkshire Hathaway business model of buying reliable businesses that continue produce returns through all types of economic climates is furniture producer Leggett & Platt, Incorporated (LEG). Founded in 1883 and based in Carthage, MO, LEG produces various home furnishings and fixtures which include seat and bed frames, mattresses, ornamental beds, bedding products and upholstered furniture along with carpeting underlay, casters, office chairs and much more. As quoted from their web site, “Hidden products that make life more pleasant.” Sometimes, it’s these under the radar companies that produce the best returns. Of course, Warren Buffett is no stranger to the furnishing industry owning several companies in the space including, Jordan’s Furniture, Nebraska Furniture Mart, RC Willey Home Furnishings and Star Furniture. Clearly, Warren Buffett and his Berkshire Hathaway Inc. (BRK-A) see some tremendous long term value in this sector.
A closer look at LEG shows a much more enticing yield of 2.94% with a moderate payout ratio of 61.8% based on an EPS of 2.07. While higher yielding than SHW and PPG, LEG’s payout ratio still allows for future dividend raises based on current cash flow. LEG has been raising its dividend for over 43 years and has a ten year annualized dividend growth rate of 8.10%. Looking at the valuation of LEG we see another relatively expensive stock with a PE of 25.3 which is slightly higher than its five year average of 22.0. Forward PE, as with the other stocks mentioned, looks better at 18.5.
I find it interesting that the above companies still sport relatively high PE’s despite the massive market swoon from all time highs. Just goes to show that certain sectors have been hit a lot harder than others in recent months with energy and industrial stocks seemingly taking the biggest brunt of the recent sell off as a rush to high quality names became apparent. There are, of course, many other dividend aristocrats that deserve more attention but the three names above seem to have fallen off of everyone’s radar as I have not come across any of those stocks in any dividend growth portfolio.
What do you think about some of the names mentioned above? Does The Sherwin-Williams Company (SHW), PPG Industries, Inc. (PPG) or Leggett & Platt, Incorporated (LEG) deserve a spot in your portfolio? W.W. Grainger, Inc. (GWW), Bemis Company, Inc. (BMS), CR Bard Inc. (BCR) and V.F. Corporation (VFC) are already in mine. Perhaps it may be time to consider some new high quality dividend payers in my own portfolio. As always, please let me know your thoughts below.
Disclosure: Long KO, JNJ, UL, CAT, EMR, GWW, BMS, BCR, VFC