Is W.W. Grainger Inc. a Solid Income Dividend King?
Looking for a worthy Dividend King among the aristocracy? Take a look at W.W. Grainger. Will it add a worthy boost to your portfolio?
W.W. Grainger Inc. (NYSE: GWW) is no stranger to dividends. In fact, the company trumpets an admirable 51-year record of dividend increases. Therefore, you may wonder whether this Fortune 500 industrial supply company should go on your list for solid dividend income. Is it a purebred among mongrels?
There's no question that it deserves its dusted-shelf place among the Dividend Kings and Dividend Aristocrats, which are companies that have raised their dividend yield over 50 and 25 years, respectively.
In this article, we'll work through factors you need to know about W.W. Grainger Inc. and the pros and cons of investing in the company. By the time you're done reading, you'll have a better understanding of the backbone of the company and whether or not you may want to invest in it.
About W.W. Grainger Inc.
William W. Grainger started an electric motor wholesaling business in Chicago in 1927, borrowing $6,000 from his wife to found the company and by 1937, had 16 branches and sales of more than $1 million. The company created a regional warehousing system in 1953 and went public in 1967. It acquired Doerr Electric Corporation in 1969 by 1996, had established itself in Mexico and Canada.
W.W. Grainger Inc. distributes MRO products and services in the United States and internationally. (MRO stands for maintenance, repair and operating.) The company serves a wide number of businesses, corporations, governments and other types of entities with a wide range of products, including:
- Safety and security supplies
- Material handling and storage equipment
- Pumps and plumbing equipment
- Cleaning and maintenance supplies
- Metalworking and hand tools
W.W. Grainger expects years of continuous growth and said as much during its September 21 investment day. For example, it has increased its U.S. market outgrowth target to 400 to 500 basis points per year. The company's Endless Assortment segment asserted high expectations for Zoro and MonotaRO through the year 2025. In addition to that, its back-to-basics approach (excellent customer service and differentiated sales and services) will also continue to boost the company throughout the targeted years.
Pros and Cons of W.W. Grainger Inc.
What are the benefits and downsides of investing in W.W. Grainger Inc.? Let's take a look before you invest.
First, let's look at the benefits of investing in W.W. Grainger Inc.:
- Dividends: A Dividend Aristocrat, W.W. Grainger Inc. has a dividend yield of 1.30%, annual dividend of $6.88 and a dividend payout ratio of 27.14% (which signifies sufficient earnings to cover its dividend payment in the future), according to MarketBeat dividend data. As of Q2, the company returned $219 million to shareholders through dividends and share repurchases. The company has increased its dividend
- Second quarter highlights: The company had sales of $3.8 billion, up 19.6% compared to last year at the same time. The company generated operating earnings of $534 million, up 60% with an EPS of $7.19, a 68.4% increase compared to last year at this same time. The company also increased its full-year guidance and had daily sales growth of 14.5% and 16.5% which also drove the EPS range of $27.25 to $28.75.
- ESG initiatives: W.W. Grainger has achieved certain ESG initiatives, which means that a wide variety of constituents can take advantage, including investors. Distribution centers achieved a 92% recycling rate and its facilities in North America have considerable LEED certified space. The company has also committed to absolute scope 1 and 2 emissions by 30% by 2030.
- Market growth: In certain segments, such as the High Touch Solutions North America (N.A) segment, W.W. Grainger has achieved tremendous growth evident through its double-digit revenue expansion. The Endless Assortment segment also reported Zoro’s business growth in the high teens. The High-Touch Solutions market should grow between 15.4% and 15.8% compared to overall MRO market growth of 4% to 7%.
Why steer clear of W.W. Grainger? Let's examine a couple of reasons:
- Stock price: Shares have skyrocketed over the summer and the stock has earned a "hold" rating, MarketBeat Ratings reports. Research analysts have issued various ratings for the stock, including "sell," "hold" and "buy" ratings. The stock isn't cheap, and if budget-conscious investors want to invest, they may have to buy fractional shares. At $517.10, you might find yourself in a tight spot.
- Downgraded: As of August 1, the Royal Bank of Canada increased their price target on W.W. Grainger from $399 to $422 and indicated an “underperform” rating. As of the same day, Morgan Stanley increased its price target on W.W. Grainger ($421 to $448) and gave the stock an “underweight” rating. StockNews.com also gave it a slight browbeating by switching it from a "strong buy" to a “buy” rating as of June 16.
W.W. Grainger: Is it a Solid Dividend Stock?
Some companies with little cash and equivalents may use stock dividends to reward shareholders, but keep in mind that that reason alone could be the reason you may want to put the brakes on investing in a company from the get-go. You don't need to worry about that with W.W. Grainger. Far from a downtrodden stock and company, W.W. Grainger has the fortitude (not to mention, the cash) to add a serious burst to your portfolio, provided that you can stomach the stock price.
When publicly traded companies like W.W. Grainger operate, they return a portion of their earnings to investors in the form of dividends. It may never make you rich in just one year, but it's better than never making additional money off of your investment, particularly if you never sell.
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