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