This Industrial Stock Could Be a Hidden Gem (and Here's Why)

The industrial sector has its share of glamorous names and story stocks. Caterpillar, Deere, and some large-cap aerospace and defense firms check those boxes.

However, the group, the sixth-largest sector in the S&P 500, still includes some companies that aren't exactly charismatic. Some may be downright boring, but there are examples of boring being beautiful, and W.W. Grainger (NYSE: GWW) could prove to be one.

This industrial stock is a hidden gem with a lengthy run of dividend hikes. Image source: Getty Images.

The industrial parts supplier has some credibility as a hidden gem for multiple reasons, including its underappreciated business model and a four-figure price tag that likely keeps some retail investors at bay. Fortunately, there's more to like with the Grainger story.

Boring, but catalyst-rich

Founded nearly a century ago, Grainger operates in the maintenance, repair, and operations (MRO) space. Putting the corporate jargon aside, the company sells an array of products that aren't "sexy," but are essential in helping factories, warehouses, and other commercial enterprises function on a day-to-day basis.

One interesting thing about that industry is that it's fragmented. There are large players such as Grainger and Amazon (NASDAQ: AMZN), as well as a slew of smaller contenders. So yes, there's competition, but scale is essential, and Grainger has that, confirming its status as a wide-moat name.

Here's one way to look at Grainger. Say you're the manager of a widget factory that employs 100 people. It's possible that, to keep things running smoothly, several hundred, or maybe even thousands, of parts, pieces, and other odds and ends are needed.

Sourcing those products from multiple vendors is burdensome. Grainger alleviates that burden by stocking millions of items, which helps it build a sticky customer base.

Those are among the reasons why some analysts view Grainger as one of the top industrial stocks to own. Beyond the wide moat, there are other catalysts for this industrial stock, including one with a political element.

Bipartisanship is hard to come by in the current environment. Still, both major parties are attempting to bring more manufacturing jobs to the U.S. If those efforts bear fruit and more factories, industrial facilities, and warehouses are built, Grainger stands to benefit. After all, a factory can't run with empty shelves.

Grainger is devoted to its dividend

One potential appeal of Grainger as an industrial stock for long-term investors is its dividend income. A payout increase announced in April extended the company's streak of boosted dividends to 54 years, making the company a Dividend King, or a company that has increased its dividends for more than 50 years.

That streak is impressive. The yield of 0.79% and the payout ratio of just 22.4% are notable as well. Both imply Grainger isn't strained by its dividend and that it will continue growing the payout for years to come.

The industrial company is also a dedicated buyer of its own stock. Last year, it spent $1.5 billion on dividends and buybacks. With that level of commitment to rewarding shareholders, Grainger doesn't need to be exciting, and for many investors, that's just fine.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Caterpillar, and Deere & Company. The Motley Fool has a disclosure policy.