Why Is RPM International Inc. (RPM) One of the Best Dividend Kings on Hedge Funds’ Radar Right Now?

We recently compiled a list of the 10 Best Dividend Kings to Buy for Safe Dividend Growth. In this article, we are going to take a look at where RPM International Inc. (NYSE:RPM) stands against the other dividend stocks.

Investors often closely track the fluctuations of the stock market, eagerly expecting price increases. However, they may overlook another significant source of returns: dividends paid by companies to their shareholders. This aspect becomes even more appealing when considering companies that have a track record of consistently increasing their dividends over time. That’s where Dividend Kings come into play. These companies have raised their payouts for at least 50 consecutive years, which is not as easy as it sounds. Hence, only 54 out of thousands of publicly traded companies in the US have managed to achieve this goal.

Dividend stocks have played an important role in the market’s overall returns historically. Dividends have accounted for 34% of the market’s returns on average from 1940 to 2023. Particularly, from the mid-1800s to the mid-1900s, these stocks were the primary factors driving stock returns along with earnings growth. Warren Buffett recognized the value of dividend growth stocks. In August 1994, his company acquired 400 million shares of Coca-Cola, valued at $1.3 billion. Initially receiving a $75 million cash dividend from Coca-Cola in 1994, this amount increased significantly to $704 million by 2022. Buffett foresaw the compounding benefits of his initial investment in Coca-Cola, understanding how dividends would enhance returns over time. He once said:

“By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings [the dividends paid] exceed 100% of what we paid for the business.”

ALSO READ: Warren Buffett’s 8 Best Dividend Stock Picks

Dividend growth stocks have been hitting on all cylinders over the years. The Dividend Aristocrats index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has delivered impressive returns in the past, outperforming other asset classes despite fluctuating market conditions. ProShare highlighted the appeal of investing in this index, especially for income investors. The report noted that the index has consistently outperformed the broader market while maintaining lower market volatility since its inception. According to the report, an initial investment of $10,000 in May 2005 could have grown to over $61,000 by March 2023. In addition, the Dividend Aristocrats index surpassed the market in eight of the ten largest quarterly downturns since 2005. Recently, we covered the list of the 25 Best Dividend Aristocrats to Buy according to Street Analysts.

Although dividend growth stocks have delivered strong returns over the years, the challenge lies in maintaining purchasing power against inflation. High Yield Dividend Aristocrats index, tracking companies that have raised their payouts for at least 20 consecutive years, has grown its dividends at a rate that has surpassed inflation over the long term. The index generated an annualized return of 13.86% over the past 15 years, whereas the Consumer Price Index (CPI) returned 2.6% during this period. This shows how important dividend growth is in the grand scheme of things. In this article, we have discussed some of the best dividend kings that have shown solid dividend growth over the decades.

Our Methodology:

For this article, we scanned the list of dividend kings, which are the companies that have raised their payouts for 50 years or more. From that list, we picked 10 companies with the highest 5-year annual average dividend growth rates. The stocks are ranked in ascending order of their annual average dividend growth in the past five years. We also considered hedge fund sentiment around each stock in Insider Monkey's database, as of the first quarter of 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

An aerial view of a large industrial roofing system installed by the specialty chemical company.

RPM International Inc. (NYSE:RPM)

5-Year Average Annual Dividend Growth Rate: 12.03%

RPM International Inc. (NYSE:RPM) is an American paint and coating manufacturing company that specializes in specialty coatings, sealants, and building materials. On April 2, the company announced a quarterly dividend of $0.46 per share, which was in line with its previous dividend. In 2023, it achieved its Dividend King status, having raised its payouts for 50 consecutive years. The stock supports a dividend yield of 1.64%, as of June 19.

In fiscal Q3 2024, RPM International Inc. (NYSE:RPM) reported a revenue of $1.52 billion, which showed a modest growth of 0.4% from the same period last year. For FY24, the company expects its consolidated sales to be flat compared to the prior-year results. However, it is poised to gain benefits from the industry trends this year, with consumer spending on paints and coatings projected to rise by about 4% as more people return to workplaces. In addition, the company's enhanced coordination in international markets is yielding positive results, with strong sales and profitability growth in emerging markets and notable margin expansion in Europe.

From a dividend point of view, RPM International Inc. (NYSE:RPM) is a dependable investment. The company has strong cash generation and has consistently increased its dividends for half a century now. For the first nine months of the year, the company generated an operating cash flow of over $941 million, which showed a massive growth from the $263 million cash recorded in the prior-year period. During this period, it returned $210.1 million to shareholders through dividends and share repurchases. With a market capitalization exceeding $14 billion as of the writing of this article, its dividend growth streak is impressive. The investment is even more appealing to investors given that the company has distributed around $3.4 billion in dividends to shareholders over the past 50 years. It is among the best dividend kings on our list.

TimesSquare Capital Management highlighted the strong business potential of RPM International Inc. (NYSE:RPM) in its Q4 2023 investor letter. Here is what the firm has to say:

“Within Materials, we seek well positioned companies that are less susceptible to swings in commodity prices. RPM International Inc. (NYSE:RPM), a producer of coatings, sealants, and building materials, gained 18%. Fiscal first quarter revenues and earnings topped consensus projections. Growth was led by business lines touching building maintenance, infrastructure, and plant spending while sales to Original Equipment Manufacturers were weaker.”

RPM International Inc. (NYSE:RPM) was a part of 25 hedge fund portfolios at the end of Q1 2024, compared with 27 a quarter earlier, as per Insider Monkey's database. The stakes held by these hedge funds have a collective value of nearly $129 million.

Overall RPM ranks 6th on our list of the best dividend stocks to buy. You can visit 10 Best Dividend Kings to Buy for Safe Dividend Growth to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of RPM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as RPM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.