We recently compiled a list of the 10 Best Dividend Aristocrat Stocks To Buy Right Now. In this article, we are going to take a look at where The Sherwin-Williams Company (NYSE:SHW) stands against the other dividend aristocrat stocks.
Investors usually buy stocks with the expectation that their value will increase as the company grows more profitable. However, stocks can offer additional advantages. As businesses succeed and mature, they often choose to distribute a portion of their profits to shareholders as cash dividends. Even more appealing are companies that not only pay dividends but consistently increase them year after year. These stocks have delivered impressive performance over time compared to other asset classes.
According to a report by Thornburg Investment Management, from 1990 to 2023, bond yields, represented by the Bloomberg U.S. Aggregate Bond Index, fell significantly from nearly 9% to 3.41%. Similarly, equity yields, reflected by the dividend payouts on the Dividend Aristocrats Index, declined from just over 3% to 2.42% during the same period. The Dividend Aristocrats Index tracks large-cap, blue-chip US companies within the broader market that have consistently increased their dividends for at least 25 consecutive years. The report further mentioned that dividend-paying stocks can not only offer a source of current income with the potential for growth over time but also help investors bring greater stability to their portfolios in the long run. The report cited Bloomberg’s data and highlighted that dividend aristocrats delivered an 11.63% return to shareholders between 1990 to 2023, compared with a 10.2% return for the broader market.
Excluding the aristocrat factor from dividend stocks highlights their significance in overall market returns. A report by S&P Dow Jones Indices reveals that since 1926, dividends have accounted for roughly 32% of the broader market’s total returns, with the remaining 68% coming from capital appreciation. This demonstrates that both steady dividend income and the potential for capital growth play crucial roles in shaping total return expectations. The report also highlighted the significant impact of compounding when it comes to dividends. Without dividends, the market’s return from January 1, 1930, to the end of July 2023 would have grown to 214%. However, if dividends had been reinvested during the same period, the return would have reached an impressive 7,219%.
Also read: 8 Magnificent Dividend Growth Stocks to Buy Now
The dividend aristocrat index has delivered a 12.5% return since the start of 2024, underperforming the broader market that has returned nearly 27%. Although dividend stocks have lagged in performance this year, companies continue to increase their payouts, reflecting investor preferences steadily. According to a recent report from S&P Dow Jones Indices, 480 dividend increases were recorded in Q3 2024, compared to 448 in Q3 2023, representing a 7.1% year-over-year growth. The total value of these increases for the quarter reached $14.1 billion. Over the past 12 months, dividend increases amounted to $74.7 billion, up from $63.9 billion in the previous year.
Our Methodology:
For this article, we first listed down all dividend aristocrat stocks — the companies with 25+ years of consecutive dividend increases. From that list, we picked 10 stocks with the highest number of hedge fund investors and ranked them in ascending order of hedge funds’ sentiment towards them, as per Insider Monkey’s Q3 2024 database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of a vibrant paint color being sprayed onto a wooden surface.
The Sherwin-Williams Company (NYSE:SHW)
Number of Hedge Fund Holders: 78
The Sherwin-Williams Company (NYSE:SHW) ranks fifth on our list of the best dividend aristocrat stocks. The Ohio-based paint and coating manufacturing company specializes in the manufacturing and production of related products. It reported mixed earnings in the third quarter of 2024, with revenues of $6.16 billion growing by a modest 0.75% on a YoY basis. Sales in the Consumer Brands Group decreased due to ongoing weakness in the North American DIY market. However, the Paint Stores Group experienced growth, particularly driven by a high single-digit increase in protective and marine products. Previous investments in residential repainting helped sustain mid-single-digit growth despite a challenging market.
The Sherwin-Williams Company (NYSE:SHW)’s cash generation remained strong in the first nine months of 2024. During this period, the company reported an operating cash flow of $2.22 billion and returned $1.97 billion to shareholders through dividends. ClearBridge Investments highlighted the strong performance of SHW in its Q3 2024 investor letter. Here is what the firm has to say:
“Despite these stock-specific headwinds, we’re confident our portfolio continues to own high-quality franchises able to generate excess returns in various economic environments. The Sherwin-Williams Company (NYSE:SHW), for example, has seen its shares rise even while its end markets have not really recovered. As the Fed raised rates aggressively to combat inflation, existing homes turnover came to a halt. Turnover of existing housing stock is Sherwin-Williams’s bread and butter business as homeowners typically paint as they are ready to sell and new owners repaint when they buy. Despite slow end market demand and because Sherwin-Williams is a best-in-class operator, it continues to execute well and gain share, taking advantage of some disarray among competitors, allowing it to hold on to pricing and benefit from some raw material deflation.”
The Sherwin-Williams Company (NYSE:SHW) offers a quarterly dividend of $0.715 per share, having raised it by 18.2% in February this year. The company maintains a 45-year streak of consistent dividend growth. The stock’s dividend yield on November 25 came in at 0.72%.
Insider Monkey’s database of Q3 2024 indicated that 78 hedge funds owned stakes in The Sherwin-Williams Company (NYSE:SHW), up from 76 in the previous quarter. These stakes have a consolidated value of over $4.63 billion. With over 1.3 million shares, Viking Global was the company’s leading stakeholder in Q3.
Overall SHW ranks 5th on our list of the best dividend aristocrat stocks to buy. While we acknowledge the potential for SHW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SHW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.