RPM International: Mid Cap High Yield Dividend Aristocrat

Includes: MCD, RPM
by: Avi Morris

RPM International (NYSE:RPM), a diversified coatings company, is a Dividend Aristocrat and proud of its record of dividend increases. However RPM is in the S&P 400 MIDCAP Index, not the S&P 500 index. 2010 is the 37th consecutive year of increased dividends which places RPM in an elite group of 57 companies that have similar track records (or better) out of thousands of US companies.

RPM manufactures and markets specialty chemical products worldwide with 2 divisions, Industrial and Consumer. Global FY2009 sales in millions of dollars are shown below (comparable FY2010 results will be reported next month):

Latin America___100

FY2010 results (ended May 31) were reported 2 weeks ago. Sales increased 1% to $3.4B and Q4 was the strongest. Organic sales inched up because of a foreign exchange gain. Adjusted diluted EPS improved to $1.45 from a depressed $1.04 in the prior year, but below the record $1.80 in FY2008.

FY2010 results for the divisions were:

Industrial (67% of sales) - Sales declined 1.7% in FY2010 but had positive momentum in Q4 which should carry forward into FY2011. However EBIT increased 15%. RPM products are sold to US commercial construction markets and the automotive aftermarket which are expected to improve in FY2011.

Consumer (33% of sales) - Sales rose 8% in FY2010 and EBIT grew 44%. Many of the product lines continued to gain market share, most recently in the automotive aftermarket.

Cash flow of $203 million was respectable, a kind way of saying its 3rd best year was pretty good given all the recessionary difficulties RPM had to deal with. Much of the decline resulted from higher working capital requirements driven by sales growth in Q4. In addition, RPM deconsolidated selected subsidiaries to finally rid the company of asbestos liabilities. The deconsolidated subsidiaries had sales of $319 million and net income of $11 million in FY2010. Without these businesses, EPS would have been reduced to $1.26.

The company is unusually stockholder friendly. RPM published a fancy 2009 annual report, a rarity today. It describes company businesses, shows 10 year track records and is truly informative rather than a standard, boring 10-K with maybe a few designer pages up front that has become common. In all fairness, the 2010 might annual might be reduced because of budget cuts. RPM also has an active dividend reinvestment program, allowing new investors to invest directly with as little as $200.

The stock performance is similar to McDonald's (NYSE:MCD). It rose from low single digits 30 years ago to $17 in 1998, then dropped in half by 2001. Since then the stock has more than doubled to $18 with the only major downturn during the market sell-off at the end of 2008. Closing prices for RPM & popular averages on August 11, 2000 were:

Dow Jones_11,027
S&P 500____1,471

In the last 10 years, RPM had to deal with substantial asbestos liabilities and the worst recession in 70 years which hit the company very hard. But the dividend was raised annually from 49¢ in 2000 to 82¢ currently with a modest increase expected in a few weeks. The asbestos liability looks to be over and RPM businesses are rebounding from the recession. While record earnings are still a few years away, RPM gets high marks for getting through this difficult period with a promising future. Value investors should be impressed by this stockholder friendly company and its 4½% yield when compared with those popular averages.

Disclosure: No positions