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Is DuluxGroup Limited the best stock on the S&P/ASX 200?

Year after year century-old iconic Australian paint manufacturer DuluxGroup Limited (ASX: DLX) delivers the goods for its shareholders – steadily notching up its sales, revenue, NPAT and franked dividends in a slow but reliable manner.

While you couldn’t call the company (which sells adhesives, garden care and other building products internationally) a huge out-performer it is certainly reliable much like its paint products.

In fact the company has managed to successfully market to a loyal cross-section of  residential, commercial and infrastructure customers for decades.

Dulux has markets for its products across Australia, New Zealand, Papua New Guinea, China and South East Asia & has even diversified its offerings into garage doors and openers, cabinet hardware, and architectural materials.

Shares in Dulux opened up today at $7.70, with its 10-year share price chart revealing there have been very few hiccups or slumps in price in that time – with a modest rise of 18.6% from where it sat at $6.49 this time last year.

Dulux has a solid lump of debt, to the tune of about $400 million, with a fairly high PE ratio of around 20, and a fully-franked dividend of 3.47%, grossed up to nearly 5%.

Analysts can’t dispute the company’s performance, despite arguing that the share price is too high, but the figures continue to tick over in a conservative way each year – it’s a bit like watching paint dry.

Analysts are likely spooked by Dulux’s propensity to trade at about 20 times its earnings, when most other defensive stocks would trade less than that.

Mid last year CLSA put a price target of $8 on the stock, as the 100-year-old quiet achiever entered “market darling” territory, and Dulux did peak at $8.24 in late November 2017, but it didn’t stay there for long.

Dulux’s share price high of $8.24 coincided with its full-year results report in November 2017 – which revealed an NPAT rise of close to 10%, up 9.6% to $142.9 million, a sales revenue rise of 4% to $1.78 billion and EBIT also up 6.5% to $214.2 million.

All eyes will be on Dulux as it hands down its interim report on May 16, but the usual, reliable, single-digit figure rises are expected.

Foolish takeaway

There’s always the risk that company’s like Dulux could lose momentum if housing construction slows or other market factors give it a knock, but it’s hardly going to go broke and it’s difficult not to like the way the company continues to grow in a steady and consistent manner.

It looks like a safe bet to me, a little bit less debt would be nice, but shares in Dulux have risen at a rate better than bank account interest is going to yield for your dollars, with a tripling share price in the last 8 years.

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Motley Fool contributor Carin Pickworth has no position in any of the 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 Scott Phillips.

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