Should you buy Sherwin-Williams (NYSE: SHW) for its upcoming dividend?

Looks like The Sherwin-Williams Company (NYSE:SHW) is set to go ex-dividend in the next four days. The ex-dividend date is usually one business day before the record date which is the latest date by which you must be present on the books of the company as a shareholder in order to receive the dividend. The ex-dividend date is important because each time a stock is bought or sold, the transaction takes at least two business days to settle. In other words, investors can buy shares of Sherwin-Williams before February 25 in order to be eligible for the dividend, which will be paid on March 11.

The company’s next dividend payout will be $0.60 per share, following last year when the company paid a total of $2.40 to shareholders. Based on last year’s payouts, Sherwin-Williams has a 0.9% return on the current share price of $268.07. Dividends contribute greatly to investment returns for long-term holders, but only if the dividend continues to be paid. We therefore need to check whether dividend payments are covered and whether profits are increasing.

See our latest analysis for Sherwin-Williams

Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Sherwin-Williams paid out a comfortable 31% of its profits last year.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NYSE: Historic SHW Dividend February 20, 2022

Have earnings and dividends increased?

Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. If earnings fall enough, the company could be forced to cut its dividend. For this reason, we are pleased to see that Sherwin-Williams’ earnings per share have increased 12% per year over the past five years. The company managed to grow its profits at a rapid pace, while reinvesting most of the profits back into the business. This will make it easier to fund future growth efforts and we think it’s an attractive combination – plus the dividend can always be increased later.

Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Over the past 10 years, Sherwin-Williams has increased its dividend by about 17% per year on average. It’s exciting to see that earnings and dividends per share have grown rapidly over the past few years.

To summarize

Does Sherwin-Williams have what it takes to maintain its dividend payouts? When companies are growing rapidly and keeping the majority of profits within the company, it is usually a sign that reinvesting profits creates more value than paying dividends to shareholders. This strategy can add significant shareholder value over the long term – as long as it is achieved without issuing too many new shares. Overall, Sherwin-Williams looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

Although it’s tempting to invest in Sherwin-Williams just for the dividends, you should always be aware of the risks involved. Our analysis shows 3 warning signs for Sherwin-Williams and you should be aware of this before buying stocks.

If you are looking for strong dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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