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Sherwin-Williams: Its Final Dividend for Fiscal 2017

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Sherwin-Williams to pay 4Q17 dividend

On October 18, 2017, Sherwin-Williams (SHW) announced the dates for its 4Q17 regular cash dividend and stated that it will pay a dividend of $0.85 per share. The dividend will be paid on December 8, 2017, to those shareholders of record as of November 17, 2017.

SHW’s 4Q17 dividend of $0.85 per share represents an increase of 1.2% over the dividend in 4Q16. Including this dividend, its total dividend paid will be $3.40 for fiscal 2017. In the past five years, SHW’s dividend has grown at a CAGR (compound annual growth rate) of 16.9%, making it one of the best dividend growth companies among its peers.

Can SHW afford this kind of dividend growth?

Generally, free cash flow is used to pay dividends. However, SHW defines free cash flow as net operating cash less capital expenditure and dividends paid. Let’s look at SHW’s net operating cash growth to see if it can support this dividend growth. Since 2012, the net operating cash for SHW has grown at a CAGR of 10.3%, which is well below the dividend growth rate. However, in the first three quarters of 2017, its net operating cash has risen 30% over the previous year. Since SHW’s dividends are paid out of net operating cash flow, the dividends paid as a percentage of net operating cash flow is on an upward trend, which is a concerning factor. Since 2012, it has risen from 18.2% to 24% in 2016. If this trend continues, it could have an adverse impact on SHW’s free cash flow generation.

Investors looking for indirect exposure to Sherwin-Williams can invest in the Materials Select Sector SPDR ETF (XLB), which has invested 4.5% of its portfolio in Sherwin-Williams. The fund also provides exposure to DowDuPont (DWDP), Monsanto (MON), and LyondellBasell (LYB) with weights of 22.6%, 8%, and 4.6%, respectively, as of November 16, 2017.

In the next part, let’s take a look at Sherwin-Williams’s dividend yield and dividend payout.

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