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If you are interested in cashing in on W.W. Grainger, Inc.’s (NYSE:GWW) upcoming dividend of US$1.44 per share, you only have 2 days left to buy the shares before its ex-dividend date, 10 May 2019, in time for dividends payable on the 01 June 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into W.W. Grainger’s latest financial data to analyse its dividend attributes.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share amount increased over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does W.W. Grainger pass our checks?
The company currently pays out 38% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect GWW’s payout to fall to 30% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.2%. However, EPS should increase to $18.41, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of GWW it has increased its DPS from $1.84 to $5.76 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, W.W. Grainger produces a yield of 2.1%, which is on the low-side for Trade Distributors stocks.
With these dividend metrics in mind, I definitely rank W.W. Grainger as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for GWW’s future growth? Take a look at our free research report of analyst consensus for GWW’s outlook.
- Valuation: What is GWW worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether GWW is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.