Much has been made in the financial media this year about the world-altering potential of artificial intelligence (AI). In fact, AI has been a key driver behind the growing popularity and market-beating performance of passively managed exchange-traded funds (ETF) like the Vanguard Growth Index Fund (VUG -1.43%), or VUG for short. Buoyed by its stake in top AI firms like Nvidia, Microsoft, and Adobe, the VUG has delivered total returns of 39% this year, easily outpacing the 19.3% total return for the S&P 500 over the same period.
However, this high-tech ETF has been solidly outperformed by a lesser-known Dividend King (a company that has raised its dividend for at least 50 years) in 2023. Matter of fact, this blue-chip dividend payer has been delivering market-crushing returns for well over a decade at this point. Here is a brief overview of this supercharged dividend stock and why it may have even more room to run in 2024 and beyond.
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A Dividend King with a superb track record
W.W. Grainger (GWW -1.26%) is a leading industrial distributor that offers a wide range of products and services for maintenance, repair, and operations (MRO) in various markets. The company operates through two segments: high-touch solutions (HTS) and endless assortment.
HTS is the main source of revenue for Grainger, accounting for nearly 81% of its total sales in the last quarter. HTS provides customized solutions for complex procurement needs of mid and large-sized businesses in the U.S., Japan, Canada, and the U.K.
Grainger's competitive edge in this segment is its high level of customer service and support. Endless assortment is Grainger's online platform that caters to retail customers and businesses looking for a broad selection of tools, parts, and supplies for businesses.
This segment faces fierce competition from online giants like Amazon Business and others, but Grainger has been gaining market share in North America and Japan by leveraging its brand recognition and distribution network.
Grainger's investment thesis rests on its strong customer loyalty in HTS, its dividend growth history, and its share buyback program. The company has increased its dividend for 52 consecutive years and has reduced its share count by 27.6% in the past decade.
Grainger also expects to grow its revenue and earnings by mid-single digits in the next few years, which should fuel even more gains for shareholders. That's quite a statement, given the dividend payer's superb performance over the last decade:
GWW Total Return Level data by YCharts
Key takeaway
Investing in emerging themes like AI can be a smart idea. The VUG, after all, has trounced the broader markets this year, and it will likely do so again in 2024. However, there is also value in owning stocks like Grainger that are not in the spotlight of the financial media, but consistently deliver solid gains for shareholders over time. Speaking to this point, Grainger has a long history of generating above-market returns on capital, increasing its dividend, and repurchasing shares on a regular basis. It also has loyal customers that give it a competitive edge. This is a winning formula that should appeal to any investor.
