PPG Industries, Inc. (NYSE:PPG) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase PPG Industries' shares on or after the 12th of May, you won't be eligible to receive the dividend, when it is paid on the 12th of June.
The company's next dividend payment will be US$0.68 per share, and in the last 12 months, the company paid a total of US$2.72 per share. Based on the last year's worth of payments, PPG Industries has a trailing yield of 2.5% on the current stock price of US$108.56. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether PPG Industries can afford its dividend, and if the dividend could grow.
We've discovered 1 warning sign about PPG Industries. View them for free.Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately PPG Industries's payout ratio is modest, at just 47% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (79%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that PPG Industries's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for PPG Industries
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that PPG Industries's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A payout ratio of 47% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. PPG Industries has delivered 7.3% dividend growth per year on average over the past 10 years.
Final Takeaway
Has PPG Industries got what it takes to maintain its dividend payments? PPG Industries has struggled to grow earnings per share, and it's paying out less than half of its earnings and more than half its cash flow to shareholders as dividends. In summary, while it has some positive characteristics, we're not inclined to race out and buy PPG Industries today.
So while PPG Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for PPG Industries and you should be aware of it before buying any shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.