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Why PPG Industries' Dividend Yield Is in a Downward Trend

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Why PPG Industries' Dividend Yield Is in a Downward Trend PART 1 OF 3

PPG Industries to Pay $0.40 as 2Q17 Dividend

PPG Industries to pay $0.40 as 2Q17 dividend

On April 20, 2017, PPG Industries (PPG) announced a dividend of $0.40 per share for 2Q17 on the company’s outstanding common stock. It will be payable on June 12, 2017, to shareholders of record as of May 10, 2017.

PPG’s peers Sherwin-Williams (SHW) and RPM International (RPM) have announced 2Q17 dividends of $0.85 and $0.30, respectively, while Valspar (VAL) didn’t declare a 2Q17 dividend as it gets closer to the merger with Sherwin-Williams.

PPG Industries to Pay $0.40 as 2Q17 Dividend

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Dividend growth

PPG Industries has one of the longest dividend-paying histories among American companies. PPG has been paying dividends every quarter since 1899. The 2Q17 dividend of $0.40 is flat compared to the dividend in 1Q16. With the assumption that the company will maintain the same dividend rate for the next two quarters, PPG’s 2017 dividend will represent a growth of 2.6% over 2016.

The second quarter dividend between 2013 and 2015 grew at a CAGR (compound annual growth rate) of 8.6%. As the graph shows, the second quarter dividend dipped in 2Q16 and 2Q17 due to the two-for-one stock split that took place in June 2015.

How PPG’s free cash flow is supporting its dividend

Dividends are usually paid out of free cash flow, so it’s important to know if a company is generating enough free cash flow to sustain its dividend growth. For our purpose, we’ll consider PPG Industries’ free cash flow and convert it into free cash flow per share.

Adjusting for the split, PPG’s dividend per share has grown at a CAGR of 6.7% since 2011. At the same time, PPG’s free cash flow per share has fallen at a CAGR of 0.2% for the same period. Since PPG’s free cash flow growth is lower than its dividend growth, it might be difficult for PPG to maintain its dividend growth over the long run until it improves on its free cash flows.

You can indirectly hold PPG Industries by investing in the Materials Select Sector SPDR ETF (XLB). As of May 10, 2017, XLB has invested 4.6% of its portfolio in PPG.

In the next part of this series, we’ll look at PPG Industries’ dividend payout and its current dividend yield.

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