Friday, April 24, 2015

Stock Analysis of W.W. Grainger

W.W. Grainger, Inc. (GWW) operates as a distributor of maintenance, repair, and operating (MRO) supplies; and other related products and services that are used by businesses and institutions primarily in the United States and Canada. W.W. Grainger, Inc.is a dividend champion, which has raised dividends for 43 years in a row.

The most recent dividend increase was in April 2014, when the Board of Directors approved a 16.10% increase in the quarterly dividend to $1.08/share.

The company’s largest competitors include Fastenal (FAST), Wesco International (WCC) and Applied Industrial Technologies (AIT).

Over the past decade this dividend growth stock has delivered an annualized total return of 16.30% to its shareholders. Future returns will be dependent on growth in earnings and starting dividend yields obtained by shareholders.


The company has managed to deliver a 13.80% average increase in annual EPS over the past decade. W.W. Grainger is expected to earn $13.01 per share in 2015 and $14.41 per share in 2016. In comparison, the company earned $11.45/share in 2014.

Earnings per share have also been aided by share buybacks. The number of shares outstanding has decreased from 92 million in 2005 to 69 million by 2015. For the past 30 years, the number of outstanding shares has been reduced by approximately one half.

The annual dividend payment has increased by 18.10% per year over the past decade, which is much higher than the growth in EPS. Future growth in dividends will be much lower than that however, and will be limited by the growth in earnings per share.

An 18% growth in distributions translates into the dividend payment doubling every four years on average. If we check the dividend history, going as far back as 1977, we could see that W.W. Grainger has managed to double dividends almost every six years on average.

In the past decade, the dividend payout ratio has increased from 24.30% in 2005 to 36.40% by 2014. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

W.W. Grainger has also managed to grow return on equity from a low of 15.90% in 2005 to 24.50% in 2014. I generally like seeing a high return on equity, which is also relatively stable over time.

Currently, W.W. Grainger is selling for 18 times forward earnings and yields 1.80%. Despite the fact that I typically require a higher initial yield, I like the growth story and the growth prospects behind this company. As a result, I recently initiated a half position in W.W. Grainger. I would consider adding to my position if current yields exceed 2%. I would really consider load up on this company if yields exceed 2.50%.

Full Disclosure: Long GWW

Relevant Articles:

Dividend Champions - The Best List for Dividend Investors
39 Dividend Champions for Further Research
Pure Dividend Growth Stocks I wish I owned
Dividend Investors – Do not forget about total returns
Warren Buffett’s Dividend Stock Strategy

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Wednesday, April 22, 2015

Are Tobacco Stocks Still A Good Investment

One category of investments that are popular with investors and have done well over the years are the Sin Stocks. These are investments in industries and sectors that are considered unethical or immoral, which include companies in alcohol, tobacco, sex-related, weapons manufacturing and military industries. This post will take a close look at the tobacco industry and presents some of the risk/reward considerations to keep in mind and evaluate: are tobacco stocks still a good investment?


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Tuesday, April 21, 2015

4 Dividend Payer With 10% Yields And Promising Fundamentals

Big dividends are dead? No, I don't think so. Despite the fact that the FED and other national banks killed the interest rates, there are still high and stable dividend payments.


Today I like to focus my thoughts on higher risk stocks with bigger dividends. Those stocks have a really low market capitalization, a high payout ratio and cheap valuation. 


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Monday, April 20, 2015

5 Best U.S. Dividend Growth Stocks

In everything we do, we always want to be the best or be associated with the best. You never hear fans yelling, 'We're number 2, we're number 2', while holding two fingers in the air. The same is true when selecting dividend growth stocks.

This is an article that I started to write several times, but would always stop after getting mired in the details. My natural tendency is make every question an analytical exercise and solve it by modeling and crunching numbers.


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