RPM International: A Dividend Growth Machine, But Wait For A Better Entry Point

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RPM International raised its dividend by a double-digit percentage, extending its dividend growth streak to over 50 years and qualifying it as a Dividend King.Recent earnings were mixed with a 2% ...

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I recommend holding until it reaches a more attractive price.Guido Mieth Specialty chemical maker RPM International Inc. (NYSE:RPM) recently raised its dividend by a double-digit percentage, which extended the company's dividend growth streak to more than 50 years. This qualifies the company as a Dividend King, of which there are just 53 names that have at least five decades of dividend growth. Around the same time, RPM released earnings results that were mixed, but faced extremely tough comparisons in the prior year. Overall, RPM's business model has proven successful, even while it has operated in a cyclical industry that very much depends on a healthy economy. The company has then used this success to reward shareholders with more than 50 years of dividend increases. Let's take a deeper look at RPM and why I believe this is a Dividend King investors should have on their radar. Recent Results First, let's examine the company's most recent results to get a sense of the business. RPM reported results for the first quarter of fiscal year 2025 on October 2nd, 2024 that were mixed. Revenue declined 2% to $1.97 billion and was $40 million less than expected. On a more positive note, the company's adjusted earnings-per-share of $1.84 was 12.2% higher than last year's $1.64. This result also topped estimates by $0.10. Looking at the company's business segments, just the Construction Products Group grew year-over-year. Revenue for this business increased 1.4% to $794 million. On the plus side, this is RPM's largest individual segment, representing more than 40% of total revenue, so improvements in this business can offset weakness in the smaller areas of the company. While the headline figure for this segment is not especially impressive, it does come on the heels of a nearly 11% improvement in sales in the same period of fiscal year 2024. RPM's ability to extend the gains seen last year speaks to the demand for its products from this segment. However, all other businesses showed at least modest declines. The Consumer Segment, fell 6.1% to $628.5 million while Performance Coating decreased 1.8% to $372 million and the Specialty Products Group was lower by 3.5% to $175 million. Performance Coatings was down largely due to a combination of divested non-core assets and a headwind from currency exchange. Organic growth for the period was 1.8%, which follows 4% growth in the prior year. Ongoing weakness in do-it-yourself channels was the driving force behind the decrease in the Consumer Segment, something that has been an issue for a few quarters now. Specialty Products Group was negatively impacted by weaker housing demand. The company noted that the storm disaster renovation business experienced higher demand, but was offset by higher customer inventory. That said, estimates for the damage caused by Hurricane Helena continue to rise, with recent figures predicting damages of more than $47 billion for property owners alone. Hurricane Milton could be one of the most destructive storms on record, with some estimates pointing towards $175 billion worth of damages. The recovery and rebuild will be long for all these areas that are impacted, which should cause demand for products from this segment to grow. Finally, RPM expects to see low single-digit revenue growth in fiscal year 2025 and consensus estimates for adjusted earnings-per-share is $5.53, which would be nearly 12% growth year-over-year. Takeaways From Recent Results It should be noted that RPM is facing extremely difficult comparable periods. For example, the company saw its revenue grow 4.1% in the same quarter of the prior fiscal year, which followed a 17.1% improvement in the first quarter of fiscal year 2023. In both instances, RPM set new quarterly records for revenue, with nearly all segments posting their best results in the company's history. Showing gains on top of these two very productive periods for the company was always going to be a difficult endeavor. Still, guidance for fiscal year 2025 is constructive. Historically, RPM has been solid at growing its bottom line. Earnings per share have increased with a CAGR of 7.6% over the last 10 years, with this growth rate accelerating to 10% when looking at just the last five years. The analysts who cover RPM believe that the company should enjoy growth at a higher rate beyond the current fiscal year. Seeking Alpha The analyst community projects nearly 12% earnings growth for each of the next two fiscal years even as revenue estimates are much lower. Seeking Alpha RPM's earnings growth should easily outpace revenue growth because the company has become much better at increasing its margins. Seeking Alpha While the company's performance relative to its sector is mixed, RPM's margin performance is considerably better than its own medium-term results. To further improve its margins, RPM has undertaken changes to its business. The Margin Achievement Plan 2025, or MAP for short, was announced in 2022 and laid out a road map for the company to improve its margins. MAP includes the consolidation of plants and the streamlining of costs and expenses to improve profitability. Since the announcement, RPM's restructuring costs have totaled more than $50 million, but the positive impact has been improvements in its margins. This process continued in the most recent quarter with RPM seeing record adjusted EBIT margins for the first quarter. RPM Investor Relations Digging deeper, all four segments of the company experienced adjusted EBIT margin growth, with Construction Products Group and Performance Coatings Group both seeing record results. This occurred even as revenue for RPM was down year-over-year with the Construction Products Group as the only segment that was higher for the period. Clearly, the adjustments being made to the business are paying off for RPM, which shows up in the growth rates and estimates for this fiscal year. Dividend Analysis RPM operates in a cyclical industry, but that hasn't stopped the company from becoming a Dividend King. Following the 10.9% increase that was announced earlier this month, RPM has now raised its dividend for 51 consecutive years. The company's peer group has struggled to even come close to RPM's dividend growth history, with the sector median growth streak at less than 1 year. This makes RPM a unicorn among its peers when it comes to growing its dividend. Dividend growth has accelerated in the near term to just over 7% annually over the last five years. This is a pickup in the 6.5% growth rate for the last decade. RPM appears to be providing higher-than-usual dividend increases as it further improves its margins and EPS results. Shares yield just 1.6%, which is lower than RPM's average yield of 1.8% for the last five years. But what the stock lacks in income, it makes up for in dividend safety. Investors should see $1.99 in dividends per share in fiscal year 2025, which results in a projected payout ratio of just 36%. This is below the 10-year average payout ratio of 43% and would be tied for the lowest in at least a decade for the company. The free cash flow payout ratio is very healthy as well. Over the last year, RPM has a free cash flow payout ratio of 30%. Over the last four years, the average payout ratio has been closer to 48%. RPM's dividend is well covered, meaning that the company's extensive dividend growth streak is likely to continue. Valuation Analysis If there is an issue in the investment case for RPM it is the valuation in my opinion. Shares are currently trading at a 52-week high of $131. Using estimates for the fiscal year, RPM has a forward price-to-earnings ratio of 23.7. For context, the stock has an average price-to-earnings ratio of closer to 22 times earnings. The sector median is much lower at less than 17 times earnings. This makes today's valuation slightly rich relative to the historical average and considerably more expensive when compared to the peer group. I do believe RPM to be unique to its sector, but would prefer to purchase shares of the company at a slightly better valuation. I have a target range of 21 to 23 times earnings estimates as I believe the strength of the company and its dividend growth streak is worth paying up for, but at a lower figure. This valuation range equates to a price target range of $116 to $127 using expected earnings-per-share for fiscal year 2025. Currently, the stock is trading above my target range. The analyst community seems to agree with me that shares are overheated as the average price target is just under $133. Of the 14 analysts covering the stock, 6 have a buy rating, 7 have a hold rating Risk to Investment Thesis The market has been willing to pay up for shares of RPM relative to its peer group because the company has produced solid to strong results for a long period of time. The company has set new records for revenue, earnings-per-share, and several other metrics in the past few years. At the same time, sales for individual segments have declined somewhat, though company-wide results have not fallen off that much. In some cases, there have been improvements, such as earnings-per-share. If this growth holds up, the market could continue to pay a higher multiple than usual for the stock, which could mean that RPM does not reach my target. One other area of note is that RPM's dividend, though likely safe from future cuts, does not provide much income. Those looking for higher yields will likely be disappointed in the name. Final Thoughts I believe RPM to be a high-quality company. The company has an extensive dividend growth track record for a company in a cyclical sector. RPM's recent results have been very good, and it has proven successful at improving its margins even if some businesses have seen declines due to tough comparable periods. While there is much to like about the stock, I find RPM to be trading ahead of a price I am willing to pay for the name.  Therefore, I have a hold rating on RPM International, but would consider adding the name at a price closer to the target range.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.0","shortVersion":"4.29.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2474772437"}