Some companies are great because they do one thing extremely well and other companies are great because they excel in several areas. W.W. Grainger (GWW 0.01%) is the latter, as the company has managed to grow revenue and earnings consistently thanks to a solid and reliable business mix.
However, the company has also excelled in the dividend department for years and as such remains a more dependable long-term investment than competitors like Applied Industrial Technologies (AIT +0.91%) and WESCO International (WCC +1.32%).
A steady business
Grainger is a distributor of facilities maintenance, repair and operating supplies, and related services. Primarily servicing the United States and Canada, Grainger operates through three main channels: a branch network with more than 700 connected sites, the Grainger catalog with more than 400,000 maintenance products available to order, and Grainger.com, the company's e-commerce platform, which offers more than 1 million product solutions.
While certainly not flashy, Grainger's business remains utilitarian in nature and therefore relatively predictable. The company has increased revenue and earnings per share in eight years out of the last nine, stumbling slightly only in the tumultuous financial crisis and recession of 2009.
Steady growth
The following is a breakdown of Grainger's projected growth rates for 2014 compared to those of Applied Industrial and WESCO:
|
Applied Industrial |
Grainger |
WESCO | |
|---|---|---|---|
|
Projected revenue growth 2014 |
4.7% |
8.3% |
5.9% |
|
Projected EPS growth 2014 |
15.6% |
12.9% |
17% |
Considering Grainger is much larger than both listed competitors, with a market capitalization of $17.8 billion compared to Applied Industrial's $2 billion and WESCO's $3.8 billion, the company's growth is admirable.
Grainger is expected to lead both Applied Industrial and WESCO by a wide margin in terms of revenue growth. Even though Grainger's 2014 earnings-per-share growth is expected to be the slowest out of the group, the company's projected growth rate of 12.9% is still very solid.
Industry-leading dividend growth
Where Grainger really pulls ahead of its competitors is in regard to dividends. Even though the company's respectable yield of 1.5% is below Applied Industrial's yield of 1.9%, Grainger is unrivaled when it comes to growing dividends over time.
Throughout the last decade, management at Grainger has increased the company's dividend 10 times at an average annual dividend growth rate of 15.8%. Additionally, this streak of dividend increases remained uninterrupted in the economically challenging 2008-2009 period. This means that investors can expect a dividend increase every year from Grainger, which is exceedingly rare.
Applied Industrial deserves some recognition on the dividend growth front as well, as the company has raised its dividend eight times in the last 10 years at an average annual growth rate of 15.5%.Unfortunately, WESCO does not pay dividends at this time.
The future is online
After reading several earnings reports from Grainger, it is clear that the company's best growth opportunity is in its e-commerce business. The senior vice president of communications and investor relations explained during the company's most recent earnings call, "E-commerce sales continued to grow faster than the rest of the business, and currently represents 33% of total company sales."
The company's online sales grew to $2.7 billion in 2012, up 23% from 2011's $2.2 billion. Management at Grainger expects the e-commerce business to continue to grow, making up 40%-50% of Grainger's total revenue in the next few years.
To better capitalize on the opportunity, Grainger recently unveiled a new e-commerce platform and iPad app. The platform, which was designed specifically for Grainger's large corporate clients, enhances navigation and adds order- management tools that allow business representatives to place and track orders instantly. Impressively, the system can handle up to 1,500 staffers on an account at once, which should increase cohesiveness and efficiency for Grainger's clients.
Conclusion
Although Grainger is an old business, it is one that is adapting to the changing consumer atmosphere quite well. Management's willingness to heavily incorporate e-commerce into the company's business mix has fostered growth and ensured that Grainger has an expanding customer base and solid industry positioning for the future.
With the ability to grow revenue, earnings, and dividends at consistent rates, Grainger has demonstrated that it is one of the most reliable companies in its industry and perhaps the nation.
