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Dividend Investing Stocks (Archived)

GWW - WW Grainger, Inc.

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the June 2015 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

WW Grainger, Inc.

WW Grainger, Inc. NYSE:GWW is a large-cap industrial suppliers company and its stock trades around $275 million per day. GWW was founded in 1927 and has an established history of paying dividends.

The key fundamentals for GWW are shown below.

Growth fundamentals for GWW

YearRevenueEPS ROEDividendBook ValueEmployees
200450403.17 14%0.8022.8013200
200555203.85 15%0.9625.5014200
200658804.56 18%1.1625.9014700
200764105.29 20%1.4026.4015700
200868506.36 23%1.6027.2016300
200962205.95 20%1.8429.9016500
201071807.35 23%2.1631.8017000
201180709.41 25%2.6437.6020000
201289509.95 23%3.2043.5021100
2013943011.56 25%3.7247.2022500

The fundamental data above shows that GWW has broadly increased its revenue, earnings, book value and employees over the last decade. These are the characteristics of an expanding company which indicates that GWW is a growth stock that pays a regular dividend. Also the annual dividends have increased considerably over the last decade.

Fundamental Analysis for GWW:

The return on equity has been increasing over the last decade and is now around 25%. The profit margin (profit to revenue ratio) is reasonable and has increased over the years to around 8%.

The current ratio (current assets to current liabilities) ranges from 2.0 to 2.8 which indicates that GWW has a sufficient amount of working capital.

The debt ratio (long-term debt to tangible assets) averages around 0.5 which means that GWW carries a moderate amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The total ratio (total liabilities to total assets) averages around 35% which means that GWWs total debt is 35% of its total assets.

The earnings growth for the 2014 fiscal year is projected to grow at 11% (based on the five year earnings growth trend). The revenue is projected to grow at 9% (based on the five year revenue growth trend).

The forward PE ratio is around 20 (calculated from the five year earnings growth trend rather than from forecast earnings). The forward PEG is around 1.7.

The current business valuation is around $144 (with a 2.5% ten year Treasury bond yield).

GWWs book value is around $47 and if GWW does run into financial problems in the future this gives an idea of how far the stock price could drop.

The bankruptcy risk can be calculated using the Z-score. GWWs Z-score is 9.3 which means GWW is a very low bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 19-May-2014 and this allows the reader to see how the stock performed over the next year.

GWW had its 2014/03 quarterly results released prior to 19-May-2014 and this information is available for the analysis. The 2014 Q1 earnings showed an increase of 3% over the same quarter from a year ago (2013 Q1). The 2014-Q1 dividend is $1.08 for the quarter which is a 16% increase over the same quarter from a year ago (2014 Q1).

Overall the fundamentals are strong with this large-cap dividend paying stock which has the characteristics of a growth stock as a bonus. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in GWW on the 19-May-2014 would give a purchase price of around $256.

The stock price performance is shown below in Chart 1. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 1. Stock chart with earnings for GWW

weekly Chart GWW

As shown in Chart 1. above, GWW gained 4% over the next year including dividends. GWWs 2014 annual earnings increased by 4% over the 2013 fiscal year and its 2014 dividends were $4.32 which is an increase of 15% over the 2013 fiscal year.

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