Dividend Growth Stock Overview: Graco Inc.

Some of Graco's products are used to lubricate vehicles to ensure operations
in all kinds of weather.
Photo: Freeimages.com/Kevin Abbott

About Graco Inc.

Graco designs, manufactures and markets equipment to pump, mix and dispense a variety of fluids and coatings. The company’s products are used in a variety of applications across multiple industries. For example, Graco’s products are used to apply tomato paste onto frozen pizzas in the food industry, pump oil and lubricants into cars and apply paints to car exteriors in the automotive industry, and spray paint onto homes in the construction industry. Graco has its headquarters in Minneapolis, Minnesota, and employs 3,100 people.

The history of Graco dates back to 1926 when Russell Gray developed an air-powered grease gun. In April of that year, Russell and his brother Leil incorporated Gray Company to market the new invention. The company expanded into other fluid handling equipment including paint pumps and direct-from-drum pumps for heavy-duty industrial use. Gray Company established an Export Department in 1960 in order to expand overseas and two years later created an International Sales Division with subsidiaries in Europe, Asia, South America and Canada. In 1969, Gray Company went public and changed its name to Graco. In 1983, the company was listed on the New York Stock Exchange.

Graco has three reportable segments: Industrial, Contractor and Lubrication. The Industrial segment designs and manufactures equipment used by industrial customers and specialty customers, including spray foam application equipment, industrial spray paint equipment and pumps of various sizes to move chemicals, food, water and waste water, and petroleum products. The Industrial segment provides about 60% of total company sales.

The Contractor segment manufactures professional-grade sprayers for use by independent contractors. Intended end users are professional painters and do-it-yourselfers. This segment provides about 30% of total Graco sales.

Finally, the Lubrication segment manufactures equipment that automatically lubricates gears, bearings and generators. This type of equipment is used by fast oil change companies and service garages, the mining, metal manufacturing and construction industries, oil, gas and wind energy industries, and the food and beverage industries. This segment provides about 10% of Graco’s total sales and the bulk of the segment’s sales come from within the United States.

Graco manufactures the majority of its products in the United States, but also has manufacturing facilities in Switzerland, China and the United Kingdom. The company sells its products worldwide; about 55% of Graco’s sales come from within the U.S., 25% of Graco’s sales come from the Europe, Middle Eastern and African region, and the remaining 20% of company sales come from the Asia Pacific region.

Graco has an active share repurchase program. In April 2015, the company added authorization to repurchase another 6 million shares, bringing the total to 7.6 million shares, roughly 13% of the total outstanding shares.

The company is a member of the S&P Mid Cap 400 index and trades under the ticker symbol GGG.

Graco’s Dividend and Stock Split History

Graco Dividend History

Since 2000, Graco has compounded dividends at an average of nearly 13% annually.

Graco has paid dividends since at least 1987 and grown them since 2000. The company generally announces annual dividend increases in December, with the stock going ex-dividend in mid-January. The company’s most recent dividend increase was announced in December 2015 when Graco increased its payout by 10% to $1.32 a share.

Graco has a good record of dividend growth. Since beginning its record of dividend growth in 2000, Graco has compounded dividends at nearly 13% a year. Over the last 5 and 10 years, Graco’s average annual dividend growth rates are 9.46% and 8.57%, respectively.

Over the last 3 decades, Graco has split its stock 7 times, each time 3-for-2. The most recent split was in May 2004. Prior to that the company split its stock in August 1988, February 1994, February 1996, February 1998, February 2001, and June 2002.

Graco’s Direct Purchase and Dividend Reinvestment Plans

Graco has both direct purchase and dividend reinvestment plans. However, to participate in either plan, you must be a current shareholder. That means that you must own shares in your own name and not that of your brokerage (i.e., “in street name”). If you do own shares in a brokerage account, you’ll have to have them issued to you and then deposited into the plan to begin participating.

The minimum investment for plan participants is $25. You can choose to have your dividends reinvested in full or deposited into your account – partial reinvestment is not a feature of the plan.

The plans are somewhat favorable for investors. There are no fees for direct or dividend reinvestment purchases made through the plan – Graco covers all of those costs. However, there are significant fees when selling stock in the plan. You’ll pay a transaction fee of between $10 and $30 per sell order, depending on the type of order (batch, market, limit) requested, plus a commission of 10 cents per share. In addition, you’ll pay $5 to have the sales proceeds directly deposited to your account. All of these fees will be deducted from the results of the sale.

Helpful Links

Graco’s Investor Relations Website

Current quote and financial summary for Graco (finviz.com)

Information on the direct purchase and dividend reinvestment plans for Graco

 

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