Written by Bob Ciura for Sure Dividend
Dividend Kings are a great option for investors looking for long-term total returns and dividend growth potential. These companies have demonstrated sustained and consistent profitability over a long period of time, making them resilient during economic challenges.
A streak of 50+ years of consecutive dividend growth also indicates that management prioritizes shareholders and practices prudent capital allocation.
This article will look at three promising Dividend Kings that can thrive through both good and bad times.
#1: PPG Industries (PPG)
PPG Industries is the world’s largest paints and coatings company. Its only competitors of similar size are Sherwin-Williams and Dutch paint company Akzo Nobel. PPG Industries was founded in 1883 as a manufacturer and distributor of glass (its name stands for Pittsburgh Plate Glass) and today has approximately 3,500 technical employees located in more than 70 countries at 100 locations. The company generates annual revenues of more than $18 billion.
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For the 2024 first quarter, revenue decreased 1.6% to $4.31 billion, which was $120 million less than expected. Adjusted net income of $441 million, or $1.86 per share, compared to adjusted net income of $432 million, or $1.82 per share, in the prior year. Adjusted earnings-per-share were in-line with consensus estimates. First quarter organic revenue growth was lower by 2%, or 1% when excluding a large customer purchase in the prior year.
Performance Coatings revenue fell 1% to $2.61 billion. Higher selling prices (+1%) and favorable currency exchange (+1%) only partially offset a decline in volume (-3%). As with prior quarters, Aerospace demand was robust, with organic sales up a mid-single-digit percentage. Protective and Marine coatings were up slightly while Automotive refinish coatings were flat.
PPG Industries also announced a share repurchase authorization of $2.5 billion, or 8.1% of the company’s current market capitalization.
For the second quarter of 2024, PPG Industries expects organic sales growth in the low single-digits and adjusted earnings-per-share in a range of $2.42 to $2.52. For 2024, the company expects organic sales to be higher by a low single-digit percentage and adjusted earnings-per-share in a range of $8.34 to $8.59. At the midpoint, this would represent a 10.4% increase from the prior year.
PPG Industries’ key advantage is that it is one of the most well-known and respected companies in the paints and coatings space. The company is also one of just three similarly-sized companies in this industry, which limits PPG Industries’ competitors. This gives PPG Industries size and scale and the ability to increase prices. This has been reflected in the company’s ability to increase product prices in order to offset volume declines.
PPG has increased its dividend for over 50 consecutive years.
#2: Sysco Corporation (SYY)
Sysco Corporation is the largest wholesale food distributor in the United States and is expanding internationally. The company was founded in Houston, Texas, in 1969 and now serves 600,000 locations with food delivery, including restaurants, hospitals, schools, hotels, and other facilities. According to estimates, the company has a 16% market share of total food delivery within the United States.
On April 30th, 2024, Sysco reported third-quarter results for Fiscal Year (FY)2024. The company demonstrated significant growth across key metrics compared to the same period in fiscal year 2023. With sales rising by 2.7% to $19.4 billion and gross profit surging by 5.2% to $3.6 billion, Sysco showcased its resilience and adaptability amidst a challenging economic environment.
Sysco’s focus on seizing market share profitably and its leadership team’s agility and accountability were highlighted as instrumental in meeting profit objectives for the quarter.
Through acquisitions and more recently organic growth with share buybacks, SYY has increased its earnings over many years. The company is also in the process of cutting overhead costs, which should mildly boost bottom-line growth. We anticipate 7.0% earnings growth over the next five years.
Sysco has an economic moat due to its large-scale and entrenched distribution infrastructure, which gives it a cost advantage over most competitors. This moat is evidenced by the company’s double-digit returns on invested capital every year, much higher than its weighted average capital cost. It’s also quite defensive; the company was almost unfazed by the previous recession and recovered from a mild earnings dip within one year.
Thanks to this stability, Sysco has raised its dividend every year since it went public, and we expect it to continue to grow in the years to come. SYY has increased its dividend for over 50 years and currently yields 2.7%.
#3: Gorman-Rupp (GRC)
Gorman-Rupp began manufacturing pumps and pumping systems back in 1933. Since that time, it has grown into an industry leader with annual sales of nearly $700 million. Today, Gorman-Rupp is a focused, niche manufacturer of critical systems that many industrial clients rely upon for their own success. Gorman-Rupp generates about one-third of its total revenue from outside of the U.S.
Gorman posted first quarter earnings on April 25th, 2024, and results were somewhat weak. Net sales were $159.3 million, down from $160.5 million a year ago. Domestic sales rose 1.1%, while international sales declined $2.5 million, or 6.2%. Gross profit was $48.4 million in Q1, or 30.4% of revenue. This was compared to $45.5 million, and 28.4%, respectively, a year ago.
The gain in gross margins was due to a 230-basis point improvement in cost of materials, including a 60-basis point improvement from inventory adjustments. Selling prices coming in higher also boosted gross margins, which were partially offset by higher labor and overhead expenses.
We are forecasting 12% earnings-per-share growth going forward. The company can achieve this result mostly through high single-digit sales growth. Given the company’s robust backlog of uncompleted work, we see revenue growth continuing for the near term. Gorman-Rupp’s primary earnings growth driver is certainly revenue as its margins fluctuate over time, and Gorman.
Rupp is focusing on cost containment efforts to help combat this while it waits for revenue to rise. The company is seeing higher margins so far in 2024.
GRC has increased its dividend for 51 years and currently yields 2.2%. Gorman-Rupp’s payout ratio is 47% of earnings for this year following the most recent increase in the dividend, but also higher earnings estimates. GRC has lots of room for continued dividend increases.
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