Core Viewpoint - W.W. Grainger Inc. has demonstrated exceptional dividend safety with a 53-year history of consecutive dividend increases, supported by strong cash flow and low payout ratios, positioning it as a reliable investment for income-focused investors [5][12]. Financial Metrics - The annual dividend is $8.62 per share, yielding 0.89% [5][13]. - Operating cash flow for 2024 was $2.11 billion, with dividend payments totaling $421 million, resulting in a coverage ratio of 5.0x [5][12]. - Free cash flow for 2024 was $1.57 billion after capital expenditures of $541 million, covering the dividend 3.7 times [5][12]. Payout Ratios - The free cash flow payout ratio is 27%, indicating substantial room for dividend growth or economic downturns [6][12]. - The earnings payout ratio stands at 24%, reflecting a healthy distribution of earnings to shareholders [6][7]. Dividend Growth History - Grainger has increased its dividend every year since 1972, with a five-year compound annual growth rate of approximately 6% [8]. - Total dividend payments rose from $316 million in 2018 to $421 million in 2024, marking a 33% increase over six years [8][9]. Recent Dividend Payments - In 2024, total dividends paid were $421 million, a year-over-year increase of 7.4% [9]. - The company has consistently raised dividends, even during economic downturns such as the 2008 financial crisis and the 2020 pandemic [9]. Shareholder Returns - In 2024, Grainger returned $1.62 billion to shareholders through dividends and share repurchases, with dividends representing just 22% of free cash flow [11][12]. - The company maintains a strong return on equity of 46.7%, supporting continued dividend growth [12].

Core Viewpoint - Waste Management has a strong dividend history and cash flow coverage, despite recent earnings volatility, raising questions about the sustainability of its dividend amidst financial pressures [1][10]. Dividend Information - The annual dividend is $3.225 per share, yielding 1.51% with a recent increase of 7.1% [1]. - The company has maintained over 20 consecutive years of dividend increases, including during the pandemic [6]. - The five-year compound annual growth rate (CAGR) for dividends is 5.3%, with 2025 marking the largest increase in years at 7.1% [8][7]. Cash Flow and Payout Ratios - In 2024, Waste Management paid $1.21 billion in dividends against $2.16 billion in free cash flow, resulting in a 56.0% free cash flow payout ratio [2]. - The earnings payout ratio is 41.6%, indicating a healthy distribution of earnings [3]. - Operating cash flow coverage is strong at 4.5 times, with operating cash flow increasing by 69% from $3.18 billion in 2017 to $5.39 billion in 2024 [3]. Debt and Leverage - The company has a total debt of $23.36 billion against $9.52 billion in equity, leading to a debt-to-equity ratio of 2.45x, which is considered elevated [4]. - The net debt-to-EBITDA ratio stands at 3.19x, which is manageable for a capital-intensive business [5]. - Interest coverage is adequate at 4.4x, providing a cushion for debt obligations [5]. Management Perspective - CEO Jim Fish describes Waste Management as a "forever stock," emphasizing the company's strategy to generate consistent long-term value [9]. - In 2024, the company returned $1.47 billion to shareholders through dividends and buybacks, with a shift towards dividends reinforcing confidence among income investors [9]. Dividend Safety - The dividend is considered safe due to the 56% free cash flow payout ratio and 50.9% earnings payout ratio, providing a substantial cushion against earnings volatility [10]. - Management projects a return to targeted leverage levels by mid-2026, with synergies from the Stericycle acquisition tracking positively [10].

Core Viewpoint - UPS is facing significant challenges with its earnings and dividend sustainability, raising concerns among investors about the future of its payouts and overall financial health [1][10]. Financial Performance - UPS reported Q2 earnings with domestic revenue declining by 0.8% to $14.1 billion, while international revenue increased by nearly 3% to $4.5 billion [4]. - The diluted earnings per share (EPS) for the recent quarter was $1.51, down from $1.65 a year ago, which raises concerns as the quarterly dividend is $1.64, indicating earnings are insufficient to support the current dividend [5]. Dividend Outlook - Management expects to make dividend payments of around $5.5 billion this year, suggesting the payout is currently safe, but it is subject to board approval [8]. - There is uncertainty regarding future profitability and revenue, leading to speculation that a dividend cut may be inevitable if business slows down further [10]. Market Environment - Recent changes in U.S. trade policy, including the suspension of duty-free de minimis exemptions, could negatively impact UPS's international business, which had shown growth in the last quarter [9]. - The overall macroeconomic environment remains uncertain, contributing to the lack of guidance from UPS regarding future financial performance [6][8]. Investment Considerations - Despite trading at a low valuation of 13 times trailing earnings, the potential for a dividend cut and ongoing tariff uncertainties make it difficult to be optimistic about UPS's stock in the near term [11][12].