Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Graco’s dividend history and safety…
Business Overview and Highlights
Graco (NYSE: GGG) is an American manufacturer of fluid-handling systems and products. The $8.3 billion business is based out of Minnesota and it employs 3,700 people. Last year Graco pulled in $1.7 billion in sales and that works out to $447,000 per employee.
On June 14, 2019, Graco’s board of directors declared a regular quarterly dividend of $0.16 per share. The dividend is payable on August 7 to shareholders of record at the close of business on July 22.
10-Year Dividend History
The company paid investors $0.26 per share a decade ago. Over the last 10 years, the dividend has climbed to $0.56. That’s a 118% increase and you can see the annual changes below…
The compound annual growth is 8.1% over 10 years… but over the last year, the dividend climbed 14.3%. The increase in dividend growth is a good sign. Graco might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Graco’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital and we’ll look at that soon.
The dividend yield comes in at 1.28% and that’s below the 10-year average of 1.9%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that every $1 Graco earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Graco’s payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is down. The last year shows a payout ratio of 29.8%. This gives wiggle room for Graco’s board of directors to raise the dividend.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free DRIP calculator. With it, you can uncover the power of dividend reinvestment growth.
Also, if you are planning your retirement make sure to use our retirement readiness calculator. It will help you find out if you’re on track for a wealthy retirement.
Good investing,
Robert
