Dividend Analysis: Valspar Corporation

The Valspar Corporation (VAL) manufactures and distributes coatings, paints, and related products primarily in the United States and internationally. Its coatings include decorative and protective coatings for metal, wood, plastic, and glass, primarily for sale to original equipment manufacturer customers.

Valspar Corp is a dividend aristocrat as well as a component in S&P 500 index. It has been increasing its dividends for the past 27 consecutive years. Over the past 10 years the company has delivered an average total return of 5.40 % annually to its loyal shareholders.

At the same time the company has managed to deliver an impressive 7.00 % average annual increase in its EPS.

The ROE declined from a high of 21% in 1998 to a low of 8% in 2001, before recovering to 13% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 11% annually, which is above the growth in EPS. An 11% growth in dividends translates into the dividend payment doubling every six and a half years. If we look at historical data, going as far back as 1994, VAL has indeed managed to double its dividend payments every six and a half years.

If we invested $100,000 in VAL on December 31, 1997 we would have bought 6435 shares (adjusted for a 2:1 split in September 2005). Your first quarterly check would have been $337.84 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $1045.80 by December 2007. For a period of 10 years, your quarterly dividend has increased by 166.67 %. If you reinvested it though, your quarterly dividend would have increased by 209.60%.

The dividend payout has remained below 50% during our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that VAL is attractively valued with its low price/earnings multiple of 14.60 and low DPR. The company also boasts an above average dividend yield at 2.50%.

Disclosure: I own shares of VAL

Comments

[johnj0522:]

Where are you getting your numbers?
Using Yahoo! Finance, on Dec 31, 1997 the opening/closing price for VAL was 30.96/31.08. So investing $100,000 at that time, one could have bought 3225 shares, not 2768. Also, the dividend that was paid in March 1998 was 5.25/share. So, 2786*5.25 = $146.25. How did you arrive at $337.84?

2008 May 08 09:24 AM

[Dividend Gr...:]

John,

Actually the amount of shares should have been 6435 ( Adjusted for a 2:1 split in 2005). The closing price at the end of december was 31.08, dividend by 2 =15.54. The dividend was $0.0525*6435 = 337.8375.
I would ask SA to change it.
Thanks fo the heads up!

2008 May 08 11:33 AM

[johnj0522:]

Sorry. What I did not realize was that the dividend as shown on the Yahoo! Finance page ($0.0525) was adjusted for the stock split. (The actual dividend that was paid in Mar '98 was $0.105, according to VAL's 1997 Annual Report.)

2008 May 13 01:37 PM

[johnj0522:]

(Whoops! Make that VAL's 1998 Annual Report!)

2008 May 13 01:39 PM