Why You Might Be Interested In W.W. Grainger, Inc. (NYSE:GWW) For Its Upcoming Dividend

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 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase W.W. Grainger's shares before the 12th of August in order to receive the dividend, which the company will pay on the 1st of September.

The company's next dividend payment will be US$2.05 per share. Last year, in total, the company distributed US$8.20 to shareholders. Calculating the last year's worth of payments shows that W.W. Grainger has a trailing yield of 0.9% on the current share price of US$951.19. If you buy this business for its dividend, you should have an idea of whether W.W. Grainger's dividend is reliable and sustainable. So we need to investigate whether W.W. Grainger can afford its dividend, and if the dividend could grow.

See our latest analysis for W.W. Grainger

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. W.W. Grainger is paying out just 21% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 22% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see W.W. Grainger has grown its earnings rapidly, up 22% a year for the past five years. W.W. Grainger looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. W.W. Grainger has delivered 8.2% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is W.W. Grainger worth buying for its dividend? W.W. Grainger has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks W.W. Grainger is facing. To help with this, we've discovered 1 warning sign for W.W. Grainger that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking 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.