This Week’s Best Stock: SHW

We ranked May’s universe of dividend stocks based on a variety of factors that we consider “results oriented.” Sherwin Williams came out on top.

We consider SHW to be a Growth Stock.

Value and Price
Based on estimated future EPS growth of 14.86% per year for the next five years (source), a discount rate of 9% (we use the total return of the index ETF SPY as our discount rate, also called minimum required rate of return), we calculate SHW’s intrinsic value at $357. The average of analyst’s price targets are $309; with the current price at around $270, we see the potential for growth ahead. The PE ratio is 39.5, so it’s pricey, as most high growth stocks tend to be.

Growth
Sherwin Williams has delivered an average of 21.45% total return per annum for the last 10 years! Even if their growth rate dropped 25%, it would still be 50% higher growth than the market as whole, as represented by the ETF SPY. SHW’s 10 year free cash flow growth rate has averaged 17% per year, and dividends averaged 15.7% growth per year over the same period. These are the reasons why we rate SHW a 5.0 our of 5.0 for growth.

Dividends
SHW’s dividend produces a low yield (which you would expect from a dividend growth stock), a long dividend streak (44+ years!),

Summary
The stock’s performance is very reliable. We feel they have too much debt but a low payout ratio gives them wiggle room. Their volatility as measured by a beta of 1.14 is higher than the market, so price oscillations will be a bit more extreme (do you like roller coasters?) Nevertheless, SHW gets an A- for ‘Excellent’ performance when compared to this month’s dividend universe.

What do you think? Please let us know in the comments.