Analyzing PPG Industries’ 2016 Dividend

PPG Industries (PPG) paid a 4Q16 dividend of $0.40 per share on December 12, 2016. Its dividend totaled $1.56 per share for 2016. 

This amount reflected a 26% fall in the company’s dividend per share on a year-over-year basis. The fall was mainly due to a two-for-one stock split that took place in 2Q15.

Without considering the stock split, PPG’s dividend per share in the past three years has grown at a CAGR (compound annual growth rate) of 6.5%. In the first nine months of 2016, PPG’s dividend payout stood at ~58%. This high payout ratio was due to a fall in the company’s net income in 3Q16. On a reporting basis, PPG reported net EPS (earnings per share) of $0.69 in 3Q16. In 2015, its dividend payout ratio was ~27.4%.

With its dividend per share rising 6.5%, we’ll see if PPG’s operating cash flow is strong enough to support its dividend payments. Since 2013, PPG’s operating cash flow has risen at a meager CAGR of 1.3%, and its free cash flow has risen at a CAGR of ~2.5% in the same period.

With its cash flows rising at a lower rate than its dividend growth, PPG doesn’t have enough room to increase its dividend rate unless it improves its cash flows. This could keep away any investors looking to invest in high paying dividend stocks.

Investors can hold PPG by investing in the Guggenheim S&P 500 Equal Weight Materials ETF (RTM). RTM holds 3.9% of its portfolio in PPG. The top holdings of the fund include Dow Chemical (DOW), DuPont (DD), and Monsanto (MON) with weights of 4.3%, 4.1%, and 4.1%, respectively, as of December 29, 2016.