PPG Industries

A boring but solid business

I think it's very important for every investor who wants to be successful in the stock market long-term to find an investment strategy that suits them. In my opinion, the following factors play a decisive role: the investment horizon, risk tolerance, and available capital. A 20-year-old can invest differently than someone who's about to retire. But even more important than finding the right investment strategy is getting started. Especially those who start investing regularly early on will benefit greatly from compound interest later. The investment strategy that suits me is boring stocks that have been successful in the market for decades and whose business models I can understand well. Furthermore, my companies should show solid growth, both in the share price and in the dividend. Since I still have a very long investment horizon, the current dividend yield isn't as important to me as the dividend growth rate. Side note: I'm currently achieving high cash flow with options trading (more on that soon).

PPG Industries is one of the most successful global manufacturers of paints, coatings, and coating materials - so a business model that should fit my investment strategy. But does the stock fit into my portfolio too?

The history and business model of PPG Industries Inc.

The origins of today's chemical company go back to November 17, 1811, when John Baptiste Ford was born in Danville (Kentucky). His father went off to New Orleans in the War of 1812 and never returned. His mother Margaret was overwhelmed with raising him and put John Baptiste into an apprenticeship as a saddler at the tender age of 12. After just 2 years he ran away and moved to Greenville (Indiana). There he met the farm girl Mary Bower, who taught him to read and write - he married her at 20. Together with her he opened a small grocery store. It did so well that he soon opened his own saddlery and a grain mill. The business-savvy young man was only just getting a taste for it and next built up his own steamboat line. By the way, this earned him the name "Captain Ford." He also made good profits in the hardware trade when he supplied the Union troops in the American Civil War. The idea for his next business finally came from his son Emory, who had admired the city's many glassworks while studying in Pittsburgh. Back in Indiana, the two founded the company New Albany Glass Works and made their first bottles and jars.

The technology for flat glass was a closely guarded secret of the Europeans back then, which is why it always had to be imported into America. As Ford's factory slowly grew, he turned to this topic, and in 1870 he actually succeeded in producing the first American flat glass. Almost 10 years later, he founded the New York City Plate Glass Company with a large plant in Creighton (Pennsylvania). In 1883, together with the industrial magnate John Pitcairn Jr., he reorganized the company as the Pittsburgh Plate Glass Company and built it into the country's leading flat glass producer. To ensure orderly distribution, Pitcairn set up a sales department in 1896. Disagreements arose over this, and Captain Ford sold his shares in the company. As president of PPG, Pitcairn set up the Columbia Chemical Company in Ohio in 1899, an independent company that produced soda ash (an important raw material for glassmaking). Since paints and painting supplies were sold through the same distribution channel, this was a logical addition to the product range. For this reason, PPG acquired a stake in the Patton Paint Company toward the end of 1900. When reinforced concrete construction became the standard in the 1920s, architects could design high-rises with large window units, which of course meant fantastic growth for PPG. In addition, the booming auto industry now also needed a lot of glass, and soon the company was also producing its first automotive paint.

The broadly positioned company continuously researched ways to improve and was able to grow very strongly over the years. In the postwar period, demand for cars and new houses exploded. PPG had to keep expanding production to meet demand. To broaden its position in the paint segment, it bought the house paint division of The Clorox Company in 1989 and entered into a joint venture with Essilor for self-darkening eyeglass lenses. With the goal of becoming one of the largest paint/coatings manufacturers in the world, it decided in 2017 to finally leave the glass business behind. Today PPG Industries employs around 47,000 people at 156 manufacturing sites worldwide and holds 9,000+ global patents.

How can PPG Industries develop in the future?

Before I turn to this question, I'd like to briefly sum up the chemical company's business model once more. PPG Industries is a leading supplier of paints, coatings, and specialty materials for consumers as well as for commercial customers in construction, industry, packaging, marine, automotive, and aerospace. As already mentioned, PPG parted ways with its long-standing glass business a few years ago, since the margins and future prospects in the paints and coatings segment were more promising. Apart from that, the company is broadly positioned globally: it generates 40 percent of net sales in its home country, America, and in Canada; about 31 percent in Europe, Africa, and the Middle East; 17.5 percent in Asia; and around 10 percent in Latin America.

Now let's take a look at the figures from the most recently reported quarter (Q1 2021). For the period January to March 2021, it reported net sales of around $3.9 billion, an increase of 15 percent over the prior-year quarter. Adjusted net income came in at $450 million, or $1.88 per share. The board also reported that the acquisition of VersaFlex has now closed. VersaFlex makes polyureas, epoxies, polyurethanes, and insulating foams and will now expand PPG's business. In addition, the acquisitions of the Finnish paint maker Tikkurila and the Swabian paint and coatings factory Wörwag are planned for the second quarter. In my opinion, PPG is on a very good path and should keep long-term investors happy in the future too.

What about the dividend?

PPG Industries began sharing its profits with shareholders in the form of dividends as early as 1899. Since then, the company has also managed to pay a dividend every quarter, although it didn't always raise it. Only in 1972 did it introduce annual dividend increases, which is why it's scheduled to become a Dividend King next year. The dividend growth rate over the last 10 years is a little over 7 percent. The current dividend yield of 1.3 percent isn't particularly high, but the payout ratio of 43 percent still leaves enough room for increases.

Conclusion:
The chemical company PPG Industries has an interesting history behind it and still has quite a bit of growth potential ahead of it. Long-term investors should take a closer look at this company, but personally I have to admit that the paint maker Sherwin-Williams appeals to me more right now.