Dividend Aristocrats In Focus Part 7: PPG Industries, Inc. (PPG)

PPG will derive 96% of its net sales each year from coatings. Previously, it collected 55% of its sales from coatings. PPG’s streamlined business model should propel further revenue growth and margin expansion.

Growth Prospects

PPG Industries, Inc. (NYSE:PPG) maintains a focused strategy because it believes paints and coatings will have the highest growth potential in the future. This should be a beneficial strategy, since the coatings business has grown profit at an 11% compound annual rate over the past decade.

PPG also has a proven track record of successfully generating growth from mergers and acquisitions.

Source: 2016 Investor Overview, slide 10

PPG should be able to pursue additional growth opportunities, as the company ended last quarter with $1.7 billion in cash and cash equivalents on hand. This cash can be used for future bolt-on acquisitions to drive earnings growth.

Another positive aspect of PPG’s portfolio restructuring is that the company will have a much bigger presence in the international markets, particularly the emerging markets like China. This should boost earnings growth because demand from the emerging markets is likely to grow at a higher rate than in the U.S.

Source: 2016 Investor Overview, slide 12

Last year, 55% of the company’s net sales came from outside the U.S. and Canada. Approximately 26% of total revenue was derived from emerging markets. Compare this with one decade earlier, when the U.S. and Canada comprised 72% of PPG’s total revenue.

The benefits of this strategy are already being felt. Earnings-per-share, as adjusted for divestitures and one-time financial items, increased 14% last year.

PPG is performing well to start 2016. Adjusted earnings-per-share rose (2) 11% in the second quarter. Last quarter was its 14^th in a row of double-digit adjusted earnings-per-share growth.

PPG should also realize earnings growth from its share repurchase program. The company utilized $750 million in share buybacks last year. It can return cash to shareholders through dividends and buybacks because it generates significant cash flow. Last year, PPG’s cash flow from operations reached a record $1.8 billion.

Share buybacks help grow earnings-per-share because fewer shares outstanding receive a larger portion of a company’s earnings-per-share, thus making each share more valuable.