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W.W. Grainger (GWW) Stock Analysis

by | Dividend Aristocrats & Champions

W.W. Grainger Logo

W.W. Grainger Dividend

(updated 7/20/2017)

The W.W. Grainger dividend has been paid continuously since 1971 and increased for 45 consecutive years; qualifying the company as a Dividend Aristocrat and Dividend Champion.

Price: $165.94
Current Dividend: $5.12

Dividend Yield: 3.1%
Cash Dividend Payout Ratio: 42%

Market Capitalization: 9.7 B
Enterprise Value: 11.5 B

Description

Sector: Industrials
Industry: Industrial Distribution

W.W. Grainger (GWW) is a business to business distributor of maintenance, repair, and operating (MRO) products and services. Over 5000 suppliers provide more than 1.6 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 in the U.S. and 7% in Canada. Approximately 89% of company revenues come from these two countries.

W.W. Grainger 2016 Sales Breakdown

Dividend Analyzer Checklist

(updated July 2017)

Dividend Safety Score (16/33 points)

Dividend Per Share (ttm): $4.88
Dividend Payout Ratio (ttm): 51%
Dividend Per Share (10 Year Growth): 16%
Cash From Operations (CFO) Per Share (ttm): 17.02
CFO Dividend Coverage (CFO / DPS): 3.5 (4/6 points)
Free Cash Flow (FCF) Per Share (ttm): $11.84
FCF Dividend Coverage (FCF / DPS): 2.4 (4/6 points)
Net Financial Debt: $2051 M
Total Assets: $5783 M
Net Financial Debt / Total Assets: 35% (4/12 points)
Net Financial Debt to EBITDA (ttm): 170%
Total Liabilities to Assets Ratio (Qtr.): 69%
Piotroski Score (1-9) (TTM): (4/9 points)

Profitability & Growth Score (32/33 points)

Revenue (10 Year Growth) *CAGR > 4.14%: 5.6% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 8.6% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 8.7% (6/6 points)
Operating Earnings Yield (ttm): 10.4% (6/7 points)
Net Income (ttm): $594 M
Gross Profit (ttm): $4089 M
Total Assets: $5783
Gross Profitability Ratio = GP / Total Assets: 71% (12/12 points)
Cash Return On Invested Capital (CROIC)(ttm): 16%
Return on Invested Capital (ROIC): 14%
Return on Invested Capital (ROIC) (5 Year Median): 20%
Return on Invested Capital (ROIC) (10 Year Median): 19%

Valuation Score (25/34 points)

Free Cash Flow Yield (ttm): 7.3% (8/9 points)
EV to EBIT (ttm): 11.6 (6/9 points)
EV to EBITDA (ttm): 9.4 (6/9 points)
PE10: 18.6 (5/7 points)
Price to Sales Ratio (ttm): 1.0
Price to Book Value (ttm): 5.7
Price to Earnings Ratio (P/E) (ttm): 17.8

TOTAL POINTS – (73/100) (50 is an average score)

*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.

W.W. Grainger Earnings Report Dates

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SWOT Analysis For W.W. Grainger

Strengths

W.W. 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”.

The company is an important channel for its 5,000 suppliers and 3.2 million customers. Its size and reputation allow it to provide value to both as well as extract above average profits for itself.

Large customers in particular need the confidence that they can obtain the right product at the right location and on time. GWW has the advantage of having the ability to provide products and services on these terms better than its competitors.

Weaknesses

The W.W. 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 eight times the number of locations as W.W. Grainger.

GWW is embarking on a strategy to increase volume by lowering profit margins. The hope is to sacrifice short term profits for long term gains in gaining market share. Obviously there is some risk to this strategy.

Opportunities

W.W. Grainger is making large investments into improving its online proficiency and revamp its distribution network to better meet the needs of changing consumer desires. A highly fragmented MRO industrial distribution market means Grainger’s #1 U.S. position (6% market share) has plenty of room to grow.

W.W. is in an outstanding position to grow its 3% global market (550 billion) share for many years. Its online sales reduce costs and now represent about 65% of their total sales.

Threats

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.

Conclusion

(updated July 2017)

W.W. Grainger (GWW) is ranked #13 (out of 251) overall and #1 (out of 57) in the Industrials Sector by the Dividend Analyzer.

Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Should Be Considered
Looking For Exposure to Consumer Defensive Sector / Should Be Considered
Deep Value Investors / Can Be Considered

Portfolio Position Disclosures:
DVB Foundation Portfolio: None
DVB Dividend Growth Portfolio: None
DVB High Income Portfolio: None
Arbor Asset Allocation Model Portfolio (AAAMP): None

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Disclaimer: While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.
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