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W.W. Grainger Inc is the leading provider of maintenance, repair, supplies and service for safety, lab, automotive and industrial products to businesses and institutions to keep their facilities and equipment running. The company has grown profits and dividends at a 9-10% rate over the past 10 years earning a 12-20% return on equity. While GWW was impacted by the slowdown in the economy, it made a strong come back in 2010 and should continue to record profit growth for the long term by:

  • Expanded product offerings. The company added 234,000 since 2006. It is also rapidly growing its private label products,
  • Rapid penetration of the e-commerce market which is the fastest growing segment of its business,
  • Strong cash flow which sustains a continuing stock buy back program.

Negatives:

  • In 2011, it will miss the benefit of the Gulf oil spill-related sales,
  • 20% of its business comes from the government sector, which will likely be curtailed by tight budgets.

GWW is rated A++, has a 15% debt to equity ratio and yields 1.6%.

Statistical Summary

Stock Yield

Dividend Growth Rate

Payout Ratio

# Increases Since 2001

GWW

1.6%

10%

28%

10

IND*

2.0

3

24

NA

Debt/Equity

ROE

EPS Down Since 2001

Net Margin

Value Line Rating

GWW

15%

23%

2

7%

A++

IND*

33

20

NA

11

NA

*IND: the average for the Electrical Equipment Industry, as complied from Value Line data.

Note: GWW stock made fantastic progress off its March 2009 low, quickly surpassing the down trend off its September 2008 high (straight red line) and November trading high (green line). Long term the stock is in an up trend (blue lines); as is the intermediate term trend (purple lines); as is the short term trend (brown lines). The wiggly red line is the 30 day moving average.

The Dividend Growth Portfolio owns a 1/2 position in GWW by virtue of having sold shares when the stock traded into its "sell half" range. We love this company; but with the stock at the upper end of its long, intermediate and short term up trends, some money has to be taken off the table. Shares would be bought at $69; the lower boundary of its sell half range is $157.

Disclosure: I am long GWW.

Source: WW Grainger: A Good Company With An Overpriced Stock