“For the ones that get it done.”
That’s the slogan for W.W. Grainger (NYSE: GWW), the famed industrial supply company.
It doesn’t matter where or what kind of business you’re in, the fact is that your tools are going to eventually break down. You can’t “get it done” if your tools don’t work.
Grainger currently provides millions of customers around the globe with the tools to get the job done: tools, motors, lighting, plumbing, and safety supplies. It’s a $32 billion dollar company and has recently been given the ultimate honor of “dividend king.”
A dividend king is a company that has been able to raise its dividend for 50 years in a row — twice as long as the more common dividend aristocrat.
But it took humble beginnings and almost a hundred years for Grainger to accede to the throne it sits upon today.
Cataloging Profits
The company was founded in Chicago back in 1927 by William W. Grainger. Bill founded the company on the idea that motors would become a very popular item. He was right.
The company launched a catalog (remember those?) shortly thereafter, and it sent Grainger motors to a nationwide audience.
The catalog featured electrical motors that Grainger, along with his sister, would ship themselves from a garage. After decades of shipping motors, Grainger began publishing two editions of its catalog, but now featuring over 35,000 items.
Dr. Lucas D. Shallua once said, “Anything great and sustainable in life, if you examine it carefully, it has a humble and obscure beginning.”
This humble company caught its stride during World War II when Grainger distributed electric motors for the government’s war efforts. That partnership allowed an expansion of sales that grew from $2.6 million in 1941 to over $7.8 million by 1948. Earnings increased almost tenfold.
Today, W.W. Grainger is a Fortune 500 company with over 25,000 employees and more than 600 branches and distribution centers in North America, Europe, and Asia. The company's product offerings include industrial supplies, safety products, tools, motors, and HVAC equipment.
You know, products to “get it done.”
An Industrious Industrial Company
Grangier currently offers over 10 million unique items that they sell to everyone, from small mom-and-pop operations to massive industrial clients. Their current pipeline will allow them to add another two million items per year for the next several years.
Add to that their renowned supply chain that allows next-day delivery for 99% of the U.S. postal codes. In the maintenance, repair, and operations business (MRO), that reliability is critical. For years it was thought that companies like Amazon would begin pulling a large chunk of Grainger's business away from them, but that simply hasn’t happened. They’ve grown.
Another slogan for the company is “We Keep the World Working”.
As we saw during the pandemic when supply chain issues plagued companies like Amazon, Grangier’s targeted supply chain continued to deliver when companies needed it most. During that time, the company’s customer service rating actually improved while the average rating of their peers dropped.
Reliable delivery and great customer service are critical in retaining long-term relations with their customers, ensuring repeat business. That reputation was further solidified when Grainger won first place in the Fortune 2023 list of the World's Most Admired Companies for the 10th year in a row.
A happy customer is always better than trying to search for new ones.
However, they are also doing that with their online sales business. In fact, they were one of the first old-economy companies to use the power of the Internet for direct business-to-business ordering. By 1999, Grainger had developed three separate internet businesses and a partnership with Netscape while competitors were just learning what Netscape was.
Over the past few years, they have significantly grown their online sales via organic search traffic.
They are currently expanding their e-commerce platforms, including MonotaRO in Japan and Zoro in the United States.
The company has seen steady growth and international expansion in the past few decades.
Grieger currently has 4.5 million customers around the world, yet currently only controls about 7% of the U.S. market and 4% of the global one. That gives them plenty of room for growth in both areas. The total U.S. business-to-business supply market is a $1.4 trillion market, and
While it might seem like Grangier would be a slow and steady company with modest total returns, look at how well they’ve performed over the past five years:
You could have safely doubled your investment — not even including the dividend payouts.
A Dividend Fit For a King
As I mentioned earlier, Grainger has increased its dividend every year for the past 51 years, making it one of the newest dividend kings. That is an impressive and well-orchestrated feat that is continuing to this day.
Grainger has increased their quarterly dividends by about 6% per year over the past five years.
Most recently, they approved a quarterly cash dividend of $1.72 per share, payable on March 1, 2023, to shareholders of record on February 13, 2023. That has translated into a modest 1.07% yield.
Another dividend hike is expected later this month, and Grainger appears to have plenty of cash flow to cover it.
Great Expectations
Grangier is a resilient company even during recessionary times. Just look at how they held up during “The Great Recession”:
- 2007 earnings-per-share of $4.94
- 2008 earnings-per-share of $6.09 (23% increase)
- 2009 earnings-per-share of $5.25 (-14% decline)
- 2010 earnings-per-share of $6.81 (30% increase)
That’s only one down year during the worst financial collapse of this generation. Their customers still require their products in good times and in bad and Grainger has not only proven to be able to tread water in the worst of times but even flourish compared to the broader S&P 500.
Much of that strength has to do with the wide range of both customers and categories without reliance on any one industry in particular. Items like safety gloves, power tools, ladders, test instruments, and motors will always be in demand.
Sales of $3.8 billion in the fourth quarter of 2022 increased by 13.2% and 17% for the entire year. The company reported $7.14 per share, which was $0.13 ahead of expectations, on revenue of $3.8 billion that beat Wall Street expectations.
Those results sent shares of Grainger soaring 14% in February,
Grangier will report Q1 earnings on April 27th, so we’ll see if they can outpace expectations yet again. The company expects to generate earnings of $34.50 per share in 2023 on sales of between $16.8 billion.
Both ranges are above analyst expectations. We’ll see if they clear Wall Street expectations of $30.93 per share in earnings on sales of $15.94 billion.
Analysts – per usual – are mixed in that prediction. According to CNN Money, the median target of the 12 analysts covering the stock is $716.50, with a high estimate of $832.00 and a low estimate of $537.00.
UBS just adjusted its price target to $800 from $695 just this week.
W.W. Grainger (NYSE: GWW) is currently trading at ~$648, leaving plenty of upsides this year, even with the median sentiment.
While we may see slight swings in the market heading into a recession, Grangier has proven for decades that it can “get it done” and deliver shareholders both capital appreciation and clockwork dividend payouts.
I’d view it as a safe, long-term dividend holding with the potential for outsized returns in a volatile environment.
Godspeed,
Jimmy Mengel
The Profit Sector
Follow me on Twitter @mengeled
