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PPG Industries, Inc. (PPG): A Free Cash Flow Machine With 44 Straight Dividend Increases

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PPG Industries, Inc. (NYSE:PPG) has warded its investors with higher dividend payments for 44 consecutive years. The company’s dividend appears to be one of the safest in the market with high growth potential as well.

PPG Dividend

Among the funds tracked by Insider Monkey, 51 held shares of PPG at the end of September, 2015, which compares with 46 funds a quarter earlier. Moreover, these funds amassed 6.80% of the company’s outstanding stock at the end of September. Ken Griffin’s Citadel Investment Group disclosed holding 3.42 million shares in its last 13F filing.

What makes this blue chip dividend stock so special? Let’s take a closer look.

Business Overview

PPG’s roots can be traced back to 1883. Today, the company is a leading supplier of paints, coatings, and specialty materials to customers in construction (45% of sales), automotive (33%), industrial (14%), and aerospace and marine (8%) markets. Coatings provide protection, performance, and decoration for a wide range of products, improving their durability and marketability.

Approximately 60% of PPG’s 2014 sales were special-purpose coatings (aerospace, automotive OEM, general industrial, packaging, marine, etc.) with the remaining 40% related to architectural applications.

By geography, about 47% of PPG’s 2014 sales were in North America, 31% in EMEA, 16% in Asia Pacific, and 6% in Latin America. Altogether, PPG has a presence in more than 70 countries.

Business Analysis

Coatings are essential materials that make products last longer and look more appealing. For example, they make cars more resistant to corrosion and beverage cans more visually appealing.

Some categories of coatings are more valuable than others. Consumers looking to repaint part of their home are going to be more sensitive to the price of paint (they perceive it as being an undifferentiated product) than an original equipment manufacturer (OEM) that is trying to improve the fuel efficiency and durability of its vehicles.

As we mentioned earlier, the majority of PPG’s sales (60%) are special-purpose coatings, which target higher-value applications. The company has historically invested 3% of sales in R&D, which amounted to more than $500 million last year.

As a result of its investments, PPG is better able to protect its customers’ assets in some of the world’s most demanding conditions and environments and attain higher margins than most of its peers.

In automotive markets, PPG’s coatings can be applied on numerous substrates including fiberglass, composites, and metallic surfaces for resistance to corrosion, chemicals, and rain erosion. PPG’s coatings also take advantage of a “wet-on-wet” application process that lowers customers’ capital costs and requires less energy. Customers can reduce the number of steps necessary to paint a vehicle by eliminating the primer layer.

In aerospace markets, PPG’s technologies can reduce over 1,000 pounds per plane, improving aircraft fuel efficiencies. Not surprisingly, the company has demonstrated excellent pricing power over the last decade:

PPG Dividend Pricing Power

Source: PPG Investor Presentation

PPG’s long-standing customer relationships, economies of scale, and focus on specialty products has helped it maintain number one market share positions in aerospace, automotive OEM, and refinish / collision markets. The company is also number two in packaging, general industrial, and architectural markets.

Despite being the largest player in the $130 billion coatings market, PPG’s market share is still less than 12%. With a high degree of fragmentation, the coatings market provides PPG with plenty of opportunity for continued growth and acquisitions.

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