Lanny’s Recent Stock Purchase – W.W. Grainger, Inc. (GWW) X 2

Well, with my first purchase of W.W. Grainger (GWW) at $193.78, the market took it for a $13+ slide or almost 7%.  If I bought the aristocrat then, then why the heck wouldn’t I buy it on a sharp decline due to guidance going forward?  An aristocrat is usually an aristocrat for a reason.  With that, it was time for me to not only get back on the driver seat, but to get back into the GWW lane this past Tuesday, where I made my second round purchase!

The Stock Price Plunge – what happened?

All analysts are calling this the Amazon (AMZN) effect.  Amazon coming in with their large e-commerce presence and disrupting the business model; something that I had suspected with GWW.  However, GWW has been able to combat that with moving more towards e-commerce and increasing the volume of sales.  Why the price has slumped?  The Amazon effect and though GWW has moved more product, their margins are lower, due to having to compete with Amazon and others on pricing.   This has caused the price to shrink down from the first time I purchased them at $193.78 down to May 19th’s price of $174.85 or a ~10% decline.

Why Do I think they will be fine?  I believe they can continue to make up more ground with volume, continuous efficiency additions to be had (cutting down costs tremendously); while maintaining their expertise & service business.  GWW performing these actions, which I am confident they will, will demonstrate their ability to succeed in the e-commerce market, and will maintain their service-line revenue stream.

The reasons why I purchased them?  Here is the quick & skinny, without repeating my first round of purchasing them:

1.) They are an aristocrat, with well over 25+ years of dividend growth; in fact – they are closing in on 50 straight years.

2.) P/E at the last purchase was 16.71; with myy purchase price of $180.22, computed a P/E ratio of 15.5.

3.) Dividend yield: at $180.22, the dividend yield based on $5.12 per year (as they increased their dividend 5% shortly after my first purchase), computed to a yield of 2.84%.  The yield is even better now, as the stock has dropped another $6+/share to show a 2.93%.

Here is a screen shot of my purchase:

I purchased $1,150 worth at $180.22 per share for a total of 6.3592 shares, with a $3.95 trading fee.  This added $32.56 to my forward dividend income and brought my going forward total to $68.12.  Currently, the stock is at $174.85, or another 3% lower.  This has caught my eye even more, and if it drops in the $168-$171 range, another purchase may occur here.  Love dividend aristocrats, what can I say?  With an over 5% drop from first purchase, I had to re-up.  Further, this stock purchase could be an example of what to do with my future cash flow that will be unlocked with paying off my auto loan.

GWW X 2 Stock purchase summary & Conclusion

This is becoming a nice rounding position in my portfolio within the industrial supply industry and will be now be producing a new forward income in total of $17.03 per quarter.  Rounding out my position with this purchase in a legendary dividend aristocrat is helping me reach my goals set for 2017.

Did you guys buy on the dip?  Thoughts on this aristocrat?  I know quite a few articles came out slamming them with the AMZN effect.  Staying away from a purchase in this industry and/or company?  Can AMZN really de-throne the king of GWW?  Think this is possible or all just media shaking things up for the market?

-Lanny

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23 thoughts on “Lanny’s Recent Stock Purchase – W.W. Grainger, Inc. (GWW) X 2

  1. Hi Lanny,
    That’s a great, strong principled move. You believe in the stock so are delighted when it dips bc it presents more buying opportunity. This does pose a question that I’ve wondered about your heavy dividend positions. YTD are you seeing your portfolio increase, go down, or remain about the same? My portfolio is much heavier speculative, with about 30% of my stocks producing dividends. However the speculatives are my big winners. The dividends are mostly stable or down a little.

    -Mike

    • Mike –

      Thanks for the comment. It depends on what your goal is : ) My portfolio is built on strong divvys and my dividend income is definitely up; no cuts at all and in my taxable account, through today, 12 of 39 companies I own have increased dividends already (not including retirement accounts); so income is definitely moving in the right direction!

      Do you have a goal for your portfolio?

      -Lanny

  2. Lanny,
    I like GWW in general, they hold a strong position in the industry – however, a slow down in construction could hamper their bottom line. Yet, I view that as temporary. They went through the recent recession and continued raising the dividend, and that was one big slowdown in construction. They have a few competitors out there such as MSA and FAST, but always forgotten is MMM who also produce a lot of similar equipment. One thing I have liked hearing is that GWW has really pushed their online sales successfully and they hold onto clients pretty easily.
    Enjoy the income. They are on my watch list too.
    – Gremlin

    • Gremlin –

      Digging the comment! Yes – their client service is strong, and keeps relationships – and their online sales have finally surged, and they’ll continue to surge – however, at lower margins, right? DGR may not be as high as it was in the past – hence a higher yield, as that’s being built in.

      They did drop to the $173’s, I believe, but have sprung back up $5/share, sadly. Keep the eye peeled!

      -Lanny

  3. I have been nibbling on GWW the last couple of months with my recent pick up last week. It’s been in my portfolio for many, many years and seeing GWW trade with a yield that was getting close to 3% was too hard to ignore. I like the buy and think there will be a place for GWW in the future as a standalone company or even as an acquisition. While the AMZN threat is very real I think GWW is addressing it just like WMT and others.

  4. I’m not that familiar with GWW, but you know what they say about when others are fearful…

    Interesting thought that Amazon is giving other companies so much difficulties, and especially it’s still one of the main reasons for investors to hold back. Would expect that the amazon effect has been going around for years now (and it probably has).

    • Divnomics –

      I am sure it has been going on; but maybe now that GWW decided to really hit online hard – that sparked the Amazon conversations. OR Amazon has talked to other entities that GWW uses to see if they can come aboard their platform to sell to higher masses. Either which way – GWW’s online sales have surged and I hope their service & client relations take them to new heights.

      -Lanny

  5. Seems like a nice pickup. A couple of you guys have been buying grainger. They must be bigger in the us but I hear the name now and then on the radio since you guys started posting about your buys. =)

    • PCI –

      Haha, hilarious – how funny are those radio commercials? GRAINGER, GRAINGER, GRAINGER! Too funny. But yes – people have been buying them in bulk, a nice aristocrat, love the sound of that!

      -Lanny

  6. Dividend Aristocrat are just too hard to pass up. Keep up the good work, a nice purchase. In a year people will be wishing they got on this while the price dipped. Cheers

  7. I must say that GWW hasn’t been on my radar. It still isn’t. A lot of that has to do with familiarity with the company. But, I like the reasons behind your purchase decisions. Sometimes it can be an emotionally hard thing to buy stocks while they are falling. But, you’re right. If you liked the stock at a higher price, you should probably love it at the lower price.

    I’ll mention one more thing. Everybody has a different opinion as to when a stock is on sale. For me, I sometimes use the price I purchase the stock at as my baseline. So, if the stock price is lower than what I purchased it for, then to me, it’s kind of like it’s on sale. Food for thought.

    • DP –

      I dig it. And yep – you can say it’s on sale if none of the fundamentals had changed and if the company did not cut or change their dividend with consistent earnings growth. Agreed!

      -Lanny

  8. I’m watching GWW as it has nose dived almost 30% since January, but the yield is still a bit low for me given they raised the dividend by only 5% this year. I would want at least a 3.5% YOC. Overall, a solid company with excellent cash flow and dividend coverage.

    Not sure if you own TGT or VFC, those are other two retail dividend aristocrats at deep discounts with good yields.

    • Mr. ATM –

      Appreciate the post! I can see your stance on wanting a higher yield with a lower growth payer; I’ll say if we own AT&T – then we are in similar positions, eh? : ) However, I digress – I do own TGT and should have captured VFC when they were really beaten down, do you own both? Adding more?

      -Lanny

  9. Hi Lanny, nice purchase on the dip. I also have it on my watch list. It is a great company with an impressive dividend history. I think you can get wrong on that one.
    Cheers

  10. I have to admit that I have been staying away from retail. The moat that a lot of the players have has been disrupted by Amazon. So for me it hasn’t been a play but I definitely understand the allure of Grainger. They are a solid company that aren’t going anywhere anytime soon.

  11. GWW looks solid. Here are the factors I looked at:
    P/E 18.13 (S&P 500 PE Ratio: 25.43) ==> Good
    EPS 9.78 ==> Good
    Div/yield 1.28/2.89 ==> Awesome yield and payout ratio
    Beta 0.76 ==> Good
    Business looks solid. The only thing i don’t understand is the 5 year drop in price. So, will probably stay away.

    W.W. Grainger, Inc. (Grainger) is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services. The Company offers its products and services to businesses and institutions in the United States and Canada, with presence also in Europe, Asia and Latin America. The Company operates through two segments, which include the United States and Canada. The Company’s business support functions provide coordination and guidance in the areas of accounting and finance, business development, communications and investor relations, compensation and benefits, information systems, health and safety, global supply chain functions, human resources, risk management, internal audit, legal, real estate, security, tax and treasury. The Company’s other businesses also include Zoro Tools, Inc. (Zoro), the single channel online business in the United States, MonotaRO Co. (MonotaRO) in Japan, and operations in Europe, Asia and Latin America.

  12. I do like Grainger, but I´m a bit concerned about the competison from Amazon. I haven´t decided if I think Amazing is disruptive or just innovating the sustaining technology that´s within the sector. However, good time to buy if Grainger gets through this.

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