In this day and age of low interest rates many retired investors have come to rely on dividend stocks to supplement pensions, Social Security payments, annuities and bonds. They don’t usually think of W W Grainger Inc (GWW) stock when they think of dividend stocks…but perhaps they should.
Instead, pharmaceutical giant Johnson & Johnson (JNJ), consumer products company Procter & Gamble (PG), and beverage titan The Coca-Cola Company (KO), all of which have been boosting the dividend annually for more than a half century, might come to mind.
Those are all great dividend stocks, but a far more unlikely candidate for the income-generating portfolio — and one not many would think of as a dividend dynamo — may be equally worthy of inclusion. I’m talking about GWW stock.
Industrial Dividend Power
If you’re an electrician and need a replacement part for the gizmo you’re repairing you might be going to the nearest W W Grainger location, the industrial equipment supplier which has been raising the dividend annually since 1972.
1971: The Vietnam War was still being waged. The microprocessor had just been invented. The Internet was a just an academic project in a lab. And GWW stock was already raising its dividend. Truly ahead of its time, folks.
Through the thick and thin of recessions, oil gluts, oil shocks, financial crises, and the dot com bust, over the last three decades GWW has boosted its dividend payment by a compounded annual rate of 11%. Like elite dividend stocks like JNJ, Procter & Gamble, and KO, the demand for its diverse product lineup, which includes fasteners, electrical equipment, adhesives, abrasives, generators, batteries, snowblowers, and test instruments will likely be there in any climate and economic situation.
GWW stock now yields about 2.20%. So taking on a little more risk than say a 10-year Treasury note, currently yielding about 1.8%, will give you a payment that is nearly 25% higher, and let you participate in the stock’s capital appreciation.
Other metrics bode well for GWW stock, which sports a P/E of 18, less than the level of the overall market, a reasonable debt load with a debt/equity ratio under 1.0, and a modest payout ratio of 39%. These characteristics are key when considering a stock that is likely to keep increasing the dividend down the road. I previously wrote about the numerical criteria that I use when selecting a dividend stock. You can read that article here.
Conclusion
Retired investors seeking a bit of extra income should consider a core holding of dividend stocks that anchor their income-producing portfolio. Besides titans like Johnson & Johnson, Procter & Gamble, and Coke, less well-known aristocrats — specifically GWW, should also be considered.
Disclaimer: the author owns shares of Johnson & Johnson, Procter & Gamble, and The Coca-Cola Company.
