Stock Analysis

Graco's (NYSE:GGG) Dividend Will Be Increased To $0.235

NYSE:GGG
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Graco Inc. (NYSE:GGG) will increase its dividend from last year's comparable payment on the 1st of February to $0.235. Based on this payment, the dividend yield for the company will be 1.4%, which is fairly typical for the industry.

See our latest analysis for Graco

Graco's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. But before making this announcement, Graco's earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 92% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Looking forward, earnings per share is forecast to rise by 25.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

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NYSE:GGG Historic Dividend December 18th 2022

Graco Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from $0.30 total annually to $0.94. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Graco has been growing its earnings per share at 32% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Graco's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. On the plus side, the dividend looks sustainable by most measures but it is let down by the lack of cash flows. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Graco that investors should take into consideration. Is Graco not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.