Is It Smart To Buy W.W. Grainger, Inc. (NYSE:GWW) Before It Goes Ex-Dividend?
Readers hoping to buy W.W. Grainger, Inc. (NYSE:GWW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 7th of May to receive the dividend, which will be paid on the 1st of June.
W.W. Grainger's next dividend payment will be US$1.62 per share, and in the last 12 months, the company paid a total of US$6.48 per share. Looking at the last 12 months of distributions, W.W. Grainger has a trailing yield of approximately 1.5% on its current stock price of $443.88. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for W.W. Grainger
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see W.W. Grainger paying out a modest 42% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.
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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at W.W. Grainger, with earnings per share up 4.1% on average over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, 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.
Final Takeaway
Should investors buy W.W. Grainger for the upcoming dividend? Earnings per share growth has been growing somewhat, and W.W. Grainger is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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. It's a promising combination that should mark this company worthy of closer attention.
So while W.W. Grainger looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. 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 dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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.
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