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5.42% Dividend yield: Why the DuluxGroup Limited share price is a buy

The DuluxGroup Limited (ASX: DLX) share price has fallen by 6% over the last two months, I think it could be time to consider buying.

Here are three reasons why you should have DuluxGroup in your portfolio:

Diverse group of strong brands

DuluxGroup owns many household improvement brands including Dulux, British Paints, Selleys, Cabot’s and Yates.

Being known for quality with recognisable brands makes DuluxGroup a go-to for house improvement and should allow for prices to be increased at a pleasing rate over time.

Warren Buffet is a big fan of brand power businesses and I think DuluxGroup fits perfectly into this motto.

Defensive earnings

Most of DuluxGroup’s products are quite defensive. They will keep being used all year round and through economic cycles.

If a property owner wants to sell their house then they would use several brands to make it better. If a couple are thinking of moving but decide to upgrade their house instead they would use some DuluxGroup products. If a landlord wants to make their property more attractive to tenants they will paint it and potentially do more.

DuluxGroup brands don’t require there to be a property boom for there to be increasing demand. Every year there are more properties in Australia which increases the potential for renovations.

Solid financials with a big dividend

DuluxGroup has been a slow and steady performer over many years.

In its latest result for the six months to 31 March 2017 it revealed that revenue grew by 3.5% and earnings per share grew by 14%. This is not bad for quite a defensive business.

The maturity, size and profitability of DuluxGroup allows management to pay out a solid dividend. The trailing grossed-up dividend yield is 5.42%, which isn’t bad for a business that grew at double digits.

Foolish takeaway

DuluxGroup is currently trading at 18x FY18’s estimated earnings. This isn’t a bargain but could be a good long-term investment as part of a diversified portfolio.

Personally, I think the share price could be negatively affected if the property market goes south, which could be the best time to buy.

Until then, I’m looking at buying these dividend shares which have a lot of growth potential.

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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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