W W Grainger Dividend Stock Analysis (GWW)
W W Grainger Dividend
Current Dividend: $5.12
Dividend Yield: 2.9%
Cash Dividend Payout Ratio: 42%
Market Capitalization: 10.1 B
Enterprise Value: 12.5 B
Industry: Industrial Distribution
W W Grainger (GWW) is a business to business distributor of maintenance, repair, and operating (MRO) products and services. Over 4500 suppliers provide more than 1.4 million products such as motors, ladders, safety products, janitorial supplies, test instruments, power tools, etc.; plus services such as inventory management and technical expertise.
Founded in 1927, GWW competes in an extremely fragmented 5 trillion dollar market. The company is #1 in North America with a 6% market share. Approximately 89% of revenues come from the U.S. and Canada. The company’s 10 billion in sales come through over 700 branches and distribution systems (60%) and online sales (40%).
SWOT Analysis For W W Grainger
Grainger has three distribution network strategies that provide competitive advantages: Broad and deep supply chain services, value-added information, and convenient multi-channel ordering. According to the company they “can reach more than 95 percent of customers via next day ground transportation”.
Large customers in particular need the confidence that they can obtain the right product at the right location and on time. Grainger has the advantage of having the ability to provide products and services on these terms better than its competitors.
The Grainger model relies less on company store footprint and more on online sales. While this is more cost effective, it can potentially have a lower customer retention percentage. For example, its closest competitor, Fastenal, has five times the store footprint as Grainger.
A highly fragmented MRO industrial distribution market means Grainger’s #1 position at 6% market share has plenty of room to grow. Grainger is in an outstanding position to grow for for many years. Its online sales reduce costs and now represent about 40% of their total sales.
Sluggish economic growth is hurting industrial companies in particular. A high concentration of large clients puts downward pressures on gross margins in a competitive and fragmented marketplace.
Dividend Analyzer Checklist
(updated November 2016)
Dividend Safety Score (15/33 points)
Dividend Per Share (ttm): $4.78
Dividend Payout Ratio (ttm): 43%
Dividend Per Share (10 Year Growth): 17.4%
Cash From Operations (CFO) Per Share (ttm): $15.01
CFO Dividend Coverage (CFO / DPS): 3.1 (3/6 points)
Free Cash Flow (FCF) Per Share (ttm): $9.58
FCF Dividend Coverage (FCF / DPS): 2.0 (4/6 points)
Net Financial Debt: $1992 M
Total Assets: $5886 M
Net Financial Debt / Total Assets: 34% (4/12 points)
Net Financial Debt to EBITDA (ttm): 148%
Total Liabilities to Assets Ratio (Qtr.): 66%
Piotroski Score (1-9) (TTM): (4/9 points)
Profitability & Growth Score (31/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 6.1% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 11.7% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 8.6% (6/6 points)
Operating Earnings Yield (ttm): 9.5% (5/7 points)
Net Income (ttm): $690 M
Gross Profit (ttm): $4127 M
Total Assets: $5965 M
Gross Profitability Ratio = GP / Total Assets: 70% (12/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 13%
Return on Invested Capital (ROIC): 16%
Return on Invested Capital (ROIC) (5 Year Median): 20%
Return on Invested Capital (ROIC) (10 Year Median): 19%
Valuation Score (20/34 points)
Free Cash Flow Yield (ttm): 4.7% (5/9 points)
EV to EBIT (ttm): 12.2 (6/9 points)
EV to EBITDA (ttm): 10.2 (5/9 points)
PE10: 24.6 (4/7 points)
Price to Sales Ratio (ttm): 1.2
Price to Book Value (ttm): 6.0
Price to Earnings Ratio (P/E) (ttm): 18.4
TOTAL POINTS – (66/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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(updated November 2016)
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Should Be Considered
Looking For Exposure to Industrial Sector / Should Be Considered
Deep Value Investors / Wait For Lower Prices
W W Grainger (GWW) is ranked #38 (out of 247) overall and #7 (out of 57) in the Industrial Sector by the Dividend Analyzer.
GWW is a Dividend Aristocrat, an extremely well-run company with far above average profitability, a good balance sheet, and a valuation that has an above average attraction.
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DVB Foundation Portfolio – None
DVB Dividend Growth – None
DVB High Income – None
Arbor Asset Allocation Model Portfolio (AAAMP) – None
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