The 10 Most Recession-Proof Dividend Aristocrats

#4 – W.W. Grainger

• 2007 through 2009 total return of 44.2% (versus -15.9% for the S&P 500)
• 2007 through 2009 maximum drawdown of 37.5% (versus 55.2% for the S&P 500)

W W Grainger Inc (NYSE:GWW) Is the largest MRO (Maintenance, Repair, Operations) supply company in North America. W.W. Grainger was founded in 1927 and has paid increasing dividends for 43 consecutive years.

The company performed well over the Great Recession of 2007 to 2009. Earnings-per-share declined from a high of $6.09 in 2008 to a low of $5.25 in 2009; a decline of 13.8%. Compare this relatively modest decline to the S&P 500’s earnings-per-share decline of 41.6% from a high of $96.40 in 2006 to $56.33 in 2009.

W W Grainger Inc (NYSE:GWW) performed well through the Great Recession because it provides businesses with fairly small purchases that are necessary to keep operations going. W.W. Grainger’s large size (relative to other MRO companies) and excellent distribution network give it a competitive advantage – and allow it to sell its products at reasonable prices.

The past decade has been rewarding for W.W. Grainger shareholders. The company has compounded earnings-per-share at 14.3% a year, and dividends at 20.3% a year over the last decade. The company currently has a payout ratio of just 37.1% – management still has ample room to grow dividend payments faster than earnings-per-share over the next several years.

Rapid growth is expected to continue for W.W. Grainger. The company’s management is targeting revenue growth of between 7% to 12% a year over the several years. The company is also planning to repurchase $3 billion worth of shares over the next 3 years. This comes to a share count reduction of about 6% a year. In addition, the company has a 2.2% dividend yield for expected total returns of 15% to 20% a year from:

• Growth of 7% to 12% a year
• Share repurchases of 6% a year
• Dividends of 2% a year

W W Grainger Inc (NYSE:GWW) is currently trading for a price-to-earnings ratio of 18.1. The company appears significantly undervalued given its high marks for safety andexcellent total return potential.