Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see W.W. Grainger, Inc. (NYSE:GWW) is about to trade ex-dividend in the next 2 days. This means that investors who purchase shares on or after the 7th of February will not receive the dividend, which will be paid on the 1st of March.
W.W. Grainger’s next dividend payment will be US$1.44 per share. Last year, in total, the company distributed US$5.76 to shareholders. Last year’s total dividend payments show that W.W. Grainger has a trailing yield of 1.9% on the current share price of $303.23. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it’s growing.
Check out our latest analysis for W.W. Grainger
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That’s why it’s good to see W.W. Grainger paying out a modest 37% of its earnings. A useful secondary check can be to evaluate whether W.W. Grainger generated enough free cash flow to afford its dividend. It distributed 40% of its free cash flow as dividends, a comfortable payout level for most companies.
It’s positive to see that W.W. Grainger’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it’s a relief to see W.W. Grainger earnings per share are up 6.0% per annum over the last five years. Management have been reinvested more than half of the company’s earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, W.W. Grainger has lifted its dividend by approximately 12% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is W.W. Grainger worth buying for its dividend? Earnings per share have been growing moderately, and W.W. Grainger is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but W.W. Grainger is being conservative with its dividend payouts and could still perform reasonably over the long run. There’s a lot to like about W.W. Grainger, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for W.W. Grainger? See what the 17 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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