Dividend Kings In Focus: RPM International

Updated on November 2nd, 2024 by Felix Martinez

On October 3rd, 2024, RPM International (RPM) announced that it would increase its quarterly dividend for the 51st consecutive year.

As a result, it has joined the list of Dividend Kings.

The Dividend Kings are a group of 53 stocks that have increased their dividends for at least 50 years. Given this longevity, we believe the Dividend Kings are among the highest-quality dividend growth stocks to buy and hold for the long term.

With this in mind, we created a full list of all 53 Dividend Kings. You can download the full list, along with important financial metrics such as dividend yields and price-to-earnings ratios, by clicking on the link below:

Click here to instantly download your free spreadsheet of all Dividend Kings now, along with important investing metrics.

RPM is a diversified company and a leader in the materials sector. We believe it has a long runway of growth ahead and can continue to be relied upon for annual dividend increases.

This article will discuss the company’s business overview, growth prospects, competitive advantages, and expected returns.

Business Overview

RPM International manufactures, markets, and distributes chemical products to industrial, retail, and specialty customers. The majority of its sales are to industrial customers. Founded in 1947, RPM employs more than 17,000 people.

Source: Investor Presentation

The company reported record financial results for Q1 of fiscal year 2025, with net income reaching $227.7 million and diluted earnings per share (EPS) at $1.77, marking a 13.5% year-over-year growth. Earnings Before Interest and Taxes (EBIT) hit $303.9 million, while adjusted EBIT rose 6.3% to $328.3 million. Despite achieving record profitability, RPM’s revenue decreased by 2.1% to $1.97 billion, impacted by weaker volumes in the Consumer and Specialty Products groups due to a downturn in residential markets and adverse currency translations, particularly in Europe and Latin America. The company, however, achieved robust cash flow, generating $248.1 million in operating cash for the quarter.

Key performance areas included RPM’s Construction Products and Performance Coatings groups, which posted organic growth driven by demand for high-performance building products. Despite facing demand declines in certain segments, Specialty Products and Consumer Groups improved their EBIT margins. The company attributes these results to the ongoing success of MAP 2025, RPM’s operational improvement initiative, which focuses on cost efficiencies, streamlining expenses, and leveraging high-margin products. This initiative also helped reduce RPM’s debt by $453.1 million over the past year and has enhanced working capital, with RPM achieving a 250-basis-point improvement in operating working capital as a percentage of sales.

Looking forward, RPM expects Q2 sales to remain flat but anticipates adjusted EBIT growth in the mid-single digits, driven by MAP 2025 efficiencies and growth in non-residential construction. The fiscal 2025 outlook remains unchanged, with anticipated low-single-digit revenue growth and adjusted EBIT growth in the mid-single- to low-double-digit range. The company notes that while residential markets continue to show softness, ongoing efforts in high-performance infrastructure projects and cost management are expected to support sustained profitability and cash flow improvement throughout the fiscal year.

Growth Prospects

In recent years, growth has been much steadier. From fiscal year 2014 to fiscal year 2024, earnings per share grew at a rate of 8.9% per year, which has accelerated to 9.5% over the last five years.

Factoring in the strength of recent results with the likely declines in earnings during the next recession, we now forecast annual earnings growth of 7%, up from 5%, through fiscal year 2029.

Organic revenue growth is expected to be the primary contributor. Expanding profit margins will also be key to the company’s future EPS growth.

Source: Investor Presentation

Growth slowed during the last recession, but RPM maintained and increased its dividend payments to shareholders even in an adverse economic climate.

Competitive Advantages & Recession Performance

RPM is a leading manufacturer and distributor of paints, coatings, construction chemicals, colorants, and adhesives to consumers, contractors, and construction businesses. Due to increases in construction and home improvement spending, these businesses perform well when the economy is growing.

However, RPM is very susceptible to recessions. You can see the company’s earnings-per-share performance during the Great Recession below:

2007 earnings-per-share of $1.64
2008 earnings-per-share of $0.36 (78% decline)
2009 earnings-per-share of $0.93 (158% increase)
2010 earnings-per-share of $1.39 (49% increase)

As you can see, the company’s earnings-per-share declined significantly in 2008, but recovered in the following two years as the economy emerged from the recession.

We expect this recession-resistant Dividend King to perform similarly during future downturns in the business environment.

RPM is not recession-proof, as shown by its decline in earnings and the time it took for earnings growth to return following the last recession. The company also has a high level of debt that could make acquisitions or high dividend growth difficult if earnings were to weaken.

From a dividend perspective, RPM’s dividend also appears very safe.

Source: Investor Presentation

The company’s projected dividend payout ratio is 47% for 2025. RPM has raised its dividend for 51 consecutive years.

Valuation & Expected Total Returns

Based on the expected EPS of $5.54 for 2025, RPM stock trades for a price-to-earnings ratio of 22.9. We reaffirm our target P/E of 22 as this is more in-line with the long-term average valuation and reflects the quality of earnings results over the past few years.

If the stock were to trade with this multiple by fiscal 2029, then valuation would be a 3% headwind to annual returns over this period.

The other major component of RPM’s future total returns will be the company’s earnings-per-share growth. We expect 7% annual EPS growth for the company.

Lastly, the company’s dividend payments will boost total returns. RPM shares currently yield 1.6%.

Overall, RPM’s expected total returns could be composed of:

7.0% earnings-per-share growth
1.6% dividend yield
3% multiple compression

Total expected annual returns are forecasted at 5.6% per year over the next five years. We now rate RPM a hold.

Final Thoughts

RPM International continues to deliver record-setting results, an impressive feat considering the company’s growth rates last fiscal year. The company also has an impressive dividend growth streak.

With expected returns just below our 10% buy threshold, we currently rate RPM stock a hold.

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The Dividend Achievers List: a group of stocks with 10+ years of consecutive dividend increases.
The Dividend Aristocrats List: S&P 500 stocks with 25+ years of dividend increases.
The Blue Chip Stocks List: contains stocks on either the Dividend Achievers, Dividend Aristocrats, or Dividend Kings list.
The Monthly Dividend Stocks List: contains stocks that pay dividends each month, for 12 payments per year.
The High Dividend Stocks List: high dividend stocks are suited for investors that need income now (as opposed to growth later) by listing stocks with 5%+ dividend yields.

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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