MSC Industrial Direct Co, Inc. (MSM) is one of the largest industrial distributors. The company focuses on metalworking and maintenance, repair and operations (MRO) products in the U.S., Canada and the U.K. The company offers over 1.65 million products through its distribution centers and branches. The company also provides inventory management and metalworking services. MSC Industrial Direct raised its dividend 19% to $0.75 per share per quarter. The forward yield is ~4.2% and the payout ratio is ~50%. This is the 16thstraight dividend increase. The stock is undervalued trading at a P/E ratio of ~13.1 below its 5-year average of 17.3. The company is also trading below the S&P 500’s P/E average of ~22.4. The company is growing top and bottom lines. From 2009 to 2018 the company has grown revenue from $1.49B to $3.20B. During that time diluted EPS has grown from $1.99 to $5.80 supporting dividend growth. I believe that the stock is undervalued at the current P/E multiple. You can read my analysis of MSM.
Fastenal Company (FAST) is another large industrial distributor that has been in business since 1967. Today the company has about 2,200 stores, 950 on-site locations and 14 distribution centers. Fastenal focuses on fasteners, which represents about 35% of total sales. The company also offers safety equipment, tools, construction supplies, supply chain solution and inventory management. Fastenal raised its quarterly dividend to $0.22 per share, a 2.3% increase. This is the 22ndconsecutive dividend increase. The current dividend yield is decent at 2.8% and the payout ratio is still only ~63%. But the latter value is approaching my threshold of ~65%. The stock is trading at P/E ratio (FWD) of ~23 above the 5-year average and that of the S&P 500’s current average. Between 2009 and 2018 Fastenal grew the top line from $1.93B to $4.97B. Simultaneously, diluted EPS grew from $0.31 per share to $1.31 per share supporting dividend growth. I believe that the stock is overvalued at the current P/E multiple.
W.W. Grainger, Inc. (GWW) is another large industrial distributor of maintenance, repair, and operations (MRO) products. The company sells to customers through its online and electronic platforms, a catalog, onsite vending machines, and 450 branches. The company generates 77% of sales in the U.S. Grainger raised its quarterly dividend 5.9% to $1.44 per share. This is the 47thstraight increase. Grainger is currently a Dividend Aristocrat but in three years will be a Dividend King. The forward yield is 2.1%. The current payout ratio is still low at ~35% giving the company room for further dividend increases. The stock is reasonably valued at a P/E ratio (FWD) if 15.6. This is below the S&P 500’s average and the 5-year average of ~18.0. Revenue has grown from $6.22B in 2009 to $11.22B in 2018. In parallel, diluted EPS has grown from $5.62 in 2008 to $13.73 in 2018 supporting dividend growth. I believe that the stock is slightly undervalued at the current P/E multiple.