My passion for investing (and all things finance) started when I was in high school, I vividly remember turning the paper over and frantically skipping past the sports section in anticipation of the business news.
Then presented with the daily stock listing I would trawl over every stock to see if I could find the ones on my ‘watch list’ (a whiteboard in my room – next to my Michael Jordan poster).
This ‘research’ lead to my first stock purchase the moment I turned 18, DuluxGroup Limited (ASX: DLX).
Moats & Market Share
One of my pillars of investing is to ensure all my investments have substantial moats and market share, I am a firm believer that companies should double down on their competitive advantage and focus on what they are good at.
It’s this thesis that initially drew me to Dulux and has me reinvesting every dividend since!
Who is Dulux Group?
Founded in 1918 Dulux has steadily grown to become the leading marketer and manufacturer of premium paint products across Australia and New Zealand, their trusted brands include Dulux, Selleys, Yates, B&D, and Cabot’s. Dulux is now a global company employing over 4,000 people in Australia, New Zealand, PNG, South East Asia, China and the UK.
The company has seen its share price gain more than 26% in the past year. In this time, we witnessed 5% revenue growth while EBIT was up 6.5% to a record $214.2 million. Resulting in a juicy 10% dividend increase.
One of the companies key moats is its brand awareness, this provides Dulux with the power to generate above industry EBIT margins while also providing them with an avenue to invest heavily in R&D – this ensures a constant supply of new products and efficient manufacturing that will not only keep costs down but also ensure their key customers (builders, painters, etc.) have new and exciting products to use and recommend.
Following on from the R&D theme, Dulux has recently opened a new paint facility in the Melbourne suburb of Clayton, valued at over $165 million this will ensure the company’s long-term competitive advantage.
At a micro level, another driver contributing to the growth of the business is the increasing population in key markets such as Melbourne and Sydney.
Not only do these new entrants require additional housing but schools, hospitals and community buildings all need renovating and extensions – using bread and butter Dulux products such as Paints, Enamels or Sealers.
However, in saying all of this, I have recently been hearing a lot of negative commentary around Dulux, especially how the slowing housing market will impact their long-term outlook.
With their quality management team and the rising tide of home renovation (if people aren’t selling they would be renovating their current home) I think Dulux is hardly going bust and will continue to provide a solid (high yielding) investment for its shareholders.
In conclusion, it still looks safe as houses, Dulux has risen at a yield better than term deposits and has successfully tripled its share price over the past 10 years.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
This article was contributed by Anthony Villella. Anthony owns shares in Dulux.