I Have High Hopes for This Top Dividend Stock to Become a Dividend King Before 2030

Over the past decade, Sherwin-Williams (NYSE: SHW) has coated investors' portfolios with outsize gains -- producing a total return of 419% compared to 243% for the S&P 500 . In addition to its strong stock performance, the company has been growing its dividend at a breakneck pace.

Earlier this year, Sherwin-Williams announced an 18.2% dividend raise -- marking the 45th consecutive year of increasing its payout. That puts it on track to become a Dividend King by 2029. Dividend Kings are S&P 500 companies that have paid and raised their dividends for at least 50 consecutive years .

Here's why Sherwin-Williams is an excellent blue chip dividend stock to buy now.

Image source: Getty Images.

A primer on Sherwin-Williams

Sherwin-Williams is a conglomerate whose portfolio extends far beyond its flagship Sherwin-Williams label. Other notable brands include Valspar (paints, stains, sealers), Minwax (wood finishes), Purdy (paint products and tools), Krylon (spray paint), Thompson's WaterSeal (multi-surface sealers, cleaners), Cabot (stains, bleaching oils), Ronseal (wood stains, paints), and others.

Sherwin-Williams makes corrosion-resistant coatings for commercial vessels and the marine industry to protect against harsh and humid environments. It sells to residential, commercial, and industrial customers, which adds a layer of diversification to its business model and helps protect against the cyclicality of its end markets.

For example, Home Depot is facing stagnating sales due to reduced spending on home improvement as home sales volumes decline. Like Home Depot, Sherwin-Williams benefits from a hot housing market and consumer spending on home improvement and do-it-yourself projects, but its business is diverse enough to where its results aren't wholly dependent on the strength of the consumer.

SHW Revenue (TTM) data by YCharts

Sherwin-Williams is generating all-time high revenue and diluted earnings per share (EPS) as margins have recovered. The company saw its revenue surge between 2019 and 2021 due to a flurry of spending on goods and home improvement projects. But as you can see in the chart, earnings dipped in the years that followed, and revenue growth stalled.

But Sherwin-Williams has, once again, kicked into a new growth gear. The company is putting up impressive results at a time when many consumer-facing materials and industrial companies are not. For example, tools maker Stanley Black & Decker has been in a multi-year downturn and is restructuring its business .

In sum, Sherwin-Williams is performing despite some challenges. Its full-year guidance calls for $10.85 to $11.35 diluted EPS -- which excludes an $0.80-per-share acquisition-related amortization expense. If Sherwin-Williams hits the midpoint of that guidance, it would have a P/E ratio of 28.6 based on full-year results. It's not a sky-high price for the company, but it is on the expensive side. However, Sherwin-Williams tends to be an expensive stock, with a 31 median P/E ratio over the last 10 years and a more than 33 median P/E over the previous three to seven years.

A results-orientated dividend

The following chart does a good job of showcasing Sherwin-Williams' approach to its dividend.

SHW Revenue (TTM) data by YCharts

Over the last five years, the company has grown its dividend and earnings at practically the same rate and far faster than revenue -- implying the business is becoming more efficient. You'll also notice that the payout ratio has gone down over the last five years, thanks to strong earnings growth. The payout ratio is just 27% -- meaning that $0.27 for every dollar in earnings is going toward dividend payments. A payout ratio of 50% is generally considered healthy -- so Sherwin-Williams' dividend is affordable.

Aside from the dividend, Sherwin-Williams uses buybacks as a key way to reward shareholders. Over the past 10 years, it has reduced its share count by 12%, grown the dividend nearly fourfold, and the stock has produced a mind-numbing 372% return -- far outpacing the S&P 500 and Nasdaq Composite .

SHW data by YCharts

During that period, Sherwin-Williams gave shareholders an 18.8% average annual return. It's unlikely it will be able to replicate those gains now that it is a much larger company. But still, management deserves credit for its excellent track record of allocating capital to grow the business and make savvy acquisitions.

Sherwin-Williams is a balanced buy

At first glance, Sherwin-Williams may seem like a boring business with a valuation that is too high and a yield that is too low. However, a deeper dive shows that the company does much more than make interior paints.

Sherwin-Williams isn't overpriced compared to its historical valuation. And given management's commitment to the payout, we should expect to see earnings and the dividend continue to grow at roughly same pace.

All told, Sherwin-Williams is an excellent blue chip dividend stock to buy now, and there's every reason to think it can become a Dividend King by 2029.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Sherwin-Williams. The Motley Fool has a disclosure policy .