Dividend Aristocrats In Focus: W.W. Grainger

Up to date on January twenty seventh, 2024

The Dividend Aristocrats are an elite group of shares within the S&P 500 Index, which have elevated their dividends for not less than 25 consecutive years. Yearly, we individually overview every of the Dividend Aristocrats.

W.W. Grainger, Inc. (GWW) is a Dividend Aristocrat that has elevated its dividend for 52 years in a row.

You may see our full record of all 68 Dividend Aristocrats, together with necessary metrics like dividend yields and P/E ratios, by clicking on the hyperlink beneath:

Disclaimer: Certain Dividend just isn’t affiliated with S&P World in any approach. S&P World owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet relies on Certain Dividend’s personal overview, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s primarily based. Not one of the info on this article or spreadsheet is official information from S&P World. Seek the advice of S&P World for official info.

Grainger’s monetary well being is carefully tied to the broader economic system as a producer of business merchandise. The corporate has a number one place in its core markets. And, it has deployed a number of initiatives to proceed rising earnings sooner or later.

This text will talk about Grainger’s enterprise, progress potential, and valuation.

Enterprise Overview

Grainger was based in 1927. In the present day, it’s a massive provider of upkeep, working, and restore merchandise, or “MRO” for brief. These are merchandise like security gloves, energy instruments, ladders, take a look at devices, and motors. It additionally affords companies equivalent to stock administration. Gross sales span a variety of each prospects and classes and not using a reliance on anybody business specifically.

The corporate generated gross sales in extra of $16 billion final yr.

On February 2nd, 2024, W.W. Grainger reported its This fall and full-year outcomes for the interval ending December thirty first, 2023. Revenues got here in at $4.0 billion, up 5.1% on a reported foundation and up 5.5% on a every day, fixed foreign money foundation (adjusted) in comparison with final yr. Outcomes had been pushed by stable efficiency throughout the board.

Supply: Investor Presentation

The Excessive-Contact Options section achieved gross sales progress of 4.7% as a consequence of stable quantity progress in all geographies. Within the Limitless Assortment section, gross sales had been up 6.0%. Development was pushed by B2B prospects throughout the section in addition to enterprise buyer progress, partially offset by declining gross sales to non-core, consumer-like prospects.

Web revenue equaled $395 million, a 14.5% improve on an adjusted foundation in comparison with This fall-2022. Web revenue was boosted by an 80 foundation level enlargement within the working margin. This was pushed by sturdy SG&A leverage aided by the absence of one-time prices within the prior yr, which was partially offset by a decline in gross revenue margin.

A decrease share depend additional boosted the per-share outcome amid Grainger’s inventory buybacks.

Adjusted earnings-per-share got here in at $8.33, 16.7% larger year-over-year. For the yr, adjusted EPS got here in at $36.23 and $36.67 on a GAAP and adjusted foundation, respectively.

Development Prospects

Grainger lays out a variety of progress initiatives within the U.S., as a mixture between “foundational” and “incremental” initiatives. In different phrases, between what the corporate is already doing to maintain market share and what it will possibly do to make additional positive aspects.

For fiscal 2024, the corporate now expects to publish $17.2 billion to $17.7 billion in gross sales. Additionally they anticipate GAAP earningsper-share to land between $38.00 and $40.50.

Supply: Investor Presentation

The corporate sees a number of avenues to generate future progress, a very powerful of which is that Granger operates in a extremely fragmented market.

Subsequently, the corporate sees a big and untapped market alternative to gasoline its long-term progress. One other progress catalyst for Grainger is e-commerce. It has numerous e-commerce platforms, together with MonotaRO in Japan, and Zoro in the US.

Grainger’s strategic shift of reducing its pricing, thereby creating larger demand, and rising its revenues, appears to have labored properly.

EPS progress can be pushed not solely by rising income but additionally by a discount within the firm’s share depend. The corporate plans to repurchase about $0.9 to $1.1 billion of its inventory throughout 2024, or roughly 2% of its excellent shares at its present market cap.

Grainger’s income is rising, margins are bettering over time and share repurchases will proceed to spice up earnings-per-share progress over the long run. We’re forecasting 8% earnings-per-share progress over the subsequent 5 years.

Aggressive Benefits & Recession Efficiency

Grainger’s aggressive benefit is its huge distribution community. It has the power to supply companies equivalent to next-day floor supply, which assist it retain its aggressive place. As well as, the enterprise’s scale permits it to cost its merchandise competitively.

Grainger just isn’t lively in a high-tech business, however the firm’s companies are important for different companies. This makes Grainger’s enterprise comparatively resilient throughout recessions, permitting it to proceed elevating its dividend every year.

These aggressive benefits helped Grainger keep extremely worthwhile throughout the Nice Recession.

Earnings-per-share throughout the financial downturn are as follows:

2007 earnings-per-share of $4.94
2008 earnings-per-share of $6.09 (23% improve)
2009 earnings-per-share of $5.25 (-14% decline)
2010 earnings-per-share of $6.81 (30% improve)

Grainger solely had one yr of earnings decline throughout the Nice Recession, in-between two very sturdy years. Furthermore, the corporate continued to develop after 2010. This means a high-quality enterprise mannequin that may stand up to recessions comparatively properly.

Valuation & Anticipated Returns

Primarily based on the anticipated earnings-per-share of $40 for 2023 and a present share value of ~$968, the inventory has a price-to-earnings ratio of 24.2.

Whereas shares have traded arms with a mean P/E ratio of 19 over the last decade, we’re taking a extra aggressive view, utilizing 21 instances earnings as a good worth baseline. Nonetheless, GWW seems to be overvalued, implying the potential for a 2.8% annual discount to shareholder returns.

Weighing this potential decline in valuation a number of in opposition to estimated EPS progress of 8% earnings progress price and the 0.8% dividend yield, buyers might anticipate a complete anticipated return of 6% per yr for the subsequent 5 years.

Closing Ideas

W.W. Grainger is a Dividend Aristocrat managed for the long run. It has encountered difficulties at instances, however the enterprise continues to persevere, simply because it has carried out for many years. Furthermore, the corporate stays worthwhile in good instances or dangerous and has an distinctive report of not solely paying but additionally growing its dividend for 52 years.

Because of this, Grainger has joined the much more unique record of Dividend Kings.

Whereas the enterprise power and potential progress are enviable, the dividend yield and the valuation usually are not significantly compelling presently. As such, we view Grainger as a stable enterprise, however the inventory is a maintain and never a purchase proper now.

Moreover, the next Certain Dividend databases include probably the most dependable dividend growers in our funding universe:

When you’re on the lookout for shares with distinctive dividend traits, take into account the next Certain Dividend databases: