The DuluxGroup Limited (ASX: DLX) share price has climbed almost 180% higher over the last 10 years.
Dulux is a $2.7 billion market cap company, with over 100 years of history. Dulux manufactures and sells paints, coatings, adhesives and other garden/building products across a number of Australasian countries, China and Southeast Asia.
FY18 earnings
In FY18 Dulux reported normalised revenue growth of 4.5% (to $1.84 billion) and profit growth of 5.4% (to $150.7 million). The result means that Dulux has now grown its profits and dividend every year since 2010. As of the FY18 report, Dulux also believes that its lead market indicators remain generally positive for FY19.
Brand power
Dulux's brands (Dulux, Selleys, Cabot's, Yates and British Paints) provide it with a strong competitive advantage. Both homeowners and professional painters see Dulux's products as superior to their competitors. This is extremely important considering how highly people in Australia and China value property.
How the property market could impact on Dulux
Investors may be concerned with how the ongoing Australian property market declines will effect Dulux. Luckily, Dulux has fairly robust earnings. Regardless of the economic and property cycles, buildings require ongoing maintenance. Management has previously stated that around two-thirds of revenue comes from the renovation and maintenance of existing homes. This provides the company with a foundation of defensive revenue. Furthermore, painting is a cost-effective way to try and increase the value of a for sale property. Homeowners who need to sell may turn to Dulux's range of strong brands to try and expedite the selling process. As the property market improves over time, there should also be an uptick in the number of properties brought to market.
Dulux continues to see strong demand, which resulted in the acquisition of its $165 million Merrifield factory. The factory has been operating at full production since the end of FY18.
Foolish Takeaway
Considering such a strong record of success, Dulux only trades at a slight premium to market multiples. This is because Dulux and the market are quite mature. The company trades on a P/E ratio of 18x earnings, compared the market's 16/17x earnings. The current dividend yield sits at a generous 4%, or 5.7% when grossed up for franking credits. Dulux is targeting a dividend payout ratio of at least 70% on NPAT before non-recurring items.
Dulux reports its half-year results on the 15th of May. With a great track record, profitable business model and strong market position, I expect Dulux to release another set of solid results and see it as a reliable dividend share for investors.
