Sherwin-Williams

Bringing color into play

Which companies are among the winners of the crisis? On the one hand, there are of course tech companies that make working from home possible and easier - both in terms of hardware and software. Apart from that, hygiene and cleaning companies were also able to benefit from the coronavirus epidemic. When people spend more time within their own four walls, they naturally want it to be nice there. So home improvement chains like Home Depot or Lowe's Companies or the specialty wholesaler Pool Corporation were also able to post significant sales increases.

In today's article, I'd like to look at another crisis winner that beautifies not only your own home, but also many global landmarks. Whether it's the Hollywood Sign, the Golden Gate Bridge or Wimbledon Stadium - products from the global paint market leader Sherwin-Williams were used on all of them.

The history and business model of the Sherwin-Williams Company

Henry Alden Sherwin was born in Baltimore on September 27, 1842. At 15, he finished school and started working at a local general store. In 1860, he moved to his uncle's in Cleveland, began his career at the dry goods business Freeman & Kellogg Co. (by the way, not a predecessor of today's Kellogg Company) and was promoted to bookkeeper within 2 years. Shortly afterwards, he was offered a partnership in the wholesaler George Sprague & Co. - but he didn't stay there long, since selling liquor wasn't his thing. Sherwin, who by that point had already saved 2,000 dollars (a lot of money back then), now faced an agonizing choice. He could choose between a job at a bank, a partnership with a pharmaceutical dealer and a partnership with the wholesaler Truman Dunham Company. Even though the latter could offer him the least, Sherwin still decided to invest his 2,000 dollars in this partnership, because he recognized its promising future. The company specialized in trading home decoration and furnishing supplies, including paints, varnishes, oils, pigments and brushes.

As a young partner, Sherwin learned a lot about this industry before deciding in 1870 to go his own way and focus on producing paint from then on. To understand this decision, it's important to look a little at the paint industry of the time. In those days, you could only buy selected shades during the spring months. Paints consisted of an oil/pigment mix that had to be stirred constantly, because otherwise it would dry out in no time and become unusable. Fortunately, toward the end of the 1870s, the mixing process was significantly improved. Sherwin took advantage of this process when he founded Sherwin-Williams & Company together with the bookkeeper Alanson T. Osborn and the Civil War veteran Edward P. Williams. The three business partners each invested an equal share of 15,000 dollars. With this capital, they soon opened their first store, where they sold paste paints, oil paints and putties. Business went so well that they were able to generate a whopping annual revenue of 422,390.97 US dollars in the very first year. In 1873, they bought a factory on the Cuyahoga River in Cleveland from Standard Oil Co. and converted it for their purposes. In 1877, the company developed the first resealable paint can, which made paint usable for much longer.

The company kept working on innovations and improved paint formulas. Gradually, it produced paints for special purposes - interior floor paint, exterior wall paint, weather-resistant paint for metal structures and many more. Sherwin-Williams developed brilliantly, and after some attractive acquisitions it is today the world's number 1 in the industry. It sells its various brands to both commercial and private customers, in its own 4,900 stores as well as at many home improvement stores and specialty retailers. Apart from that, the Sherwin-Williams Performance Coatings Group supplies a broad range of high-tech solutions for the construction, packaging and automotive industries and many other sectors.

How do I see Sherwin-Williams' future?

First, let's take a look at the recent numbers from the second quarter of 2020. Sherwin-Williams saw strong demand in its home market, so the company was able to increase its earnings by a whole 29 percent over the prior-year quarter to 6.48 dollars per share. That beat analysts' forecasts, and the stock hit a new all-time high.

As already mentioned in the introduction, the DIY sector is booming extremely right now. The coronavirus period, when it felt like everyone was locked up within their own four walls, of course gave demand another boost. But the trend toward more do-it-yourself has been visible for a while. DIY provides a creative outlet that many employees miss in their everyday lives. Apart from rising demand, Sherwin-Williams also plans to keep growing by expanding its retail business. For example, it wants to open around 50 new stores in total in 2020.

Since 2016, when Sherwin-Williams acquired its former competitor Valspar for the hefty sum of 8.9 billion US dollars, it has been the undisputed world market leader in paints and coatings. Through this costly acquisition, the company was able to significantly push forward and expand its market position in Asia, Europe, the Middle East and Africa. In addition, combining the two companies resulted in great synergy effects that are clearly noticeable today. I'm convinced that Sherwin-Williams will continue to keep an eye out for attractive takeover candidates in the future.

What about the dividend?

Shareholders received their first dividend as early as 1885. Back then, however, Sherwin-Williams wasn't listed on the stock exchange yet. The paint pro only went public on the New York Stock Exchange in 1964. Since 1979, the company has managed to pay its dividend quarterly and even raise it every year. The Dividend Aristocrat can also show excellent growth. Over 10 years, the dividend growth rate is 14.35 percent - which makes even the dividend yield of 0.7 percent seem not so low. The whole thing is rounded off by a low payout ratio of 27.5 percent.

Conclusion:
Even though the Sherwin-Williams Company is well known in its home market of America, very few Germans have probably ever heard of this great company. And I just have to admit that I'm a big fan of boring and rather unknown stocks that still deliver first-class performance. So if you want to add some color to your portfolio, you should definitely take a closer look at Sherwin-Williams.