Updated on February 9th, 2022 by Kay Ng
Put simply, investing in high-quality dividend growth stocks can lead to outstanding long-term returns. Investors looking for dividend income and sustainable growth should start with the Dividend Aristocrats, an exclusive group of companies that have raised their dividends for 25+ consecutive years.
With this in mind, we created a full list of all 66 Dividend Aristocrats, along with important financial metrics like dividend yields and price-to-earnings ratios.
You can download an Excel spreadsheet with the full list of Dividend Aristocrats by using the link below:
There are only 66 Dividend Aristocrats. This article will review diversified industrial manufacturer Stanley Black & Decker (SWK).
Stanley Black & Decker has an amazing track record of dividend payments. The company has paid dividends for 145 years and has increased its dividend each year for 54 consecutive years. Today, the company’s dividend appears very safe relative to its underlying fundamentals.
It now ranks among an even more exclusive club than the Dividend Aristocrats. Stanley Black & Decker is a member of the Dividend Kings, a group of just 38 companies with 50+ consecutive years of dividend increases.
Put simply, the Dividend Aristocrats and Dividend Kings are the best of the best when it comes to dividend growth stocks. This article will discuss the qualities that have made Stanley Black & Decker a time-tested dividend growth stock.
Stanley Black & Decker is the result of Stanley Works’ $3.5 billion acquisition of Black & Decker in 2009. Stanley Works and Black & Decker were both named after their respective founders. Stanley Works was formed in 1843 when Frederick Stanley started a small shop in New Britain, Connecticut, where he manufactured bolts, hinges, and other hardware. His products developed a reputation for their quality.
Meanwhile, Black & Decker was started by Duncan Black and Alonzo Decker in 1910. Like Stanley, they opened a small hardware shop. In 1916, they obtained a patent to manufacture the world’s first portable power tool. Over the next 175 years, Stanley Black & Decker has steadily grown into one of the world’s largest industrial products manufacturers.
Source: Investor Presentation
Its main products include hand tools, power tools, and related accessories. It also produces electronic security solutions, healthcare solutions, engineered fastening systems, and more.
Revenue growth has accelerated over the past two decades. Today, Stanley Black & Decker has a market capitalization of $27 billion, which makes it a large-cap stock.
The company has annual sales of more than $15 billion. It operates three business segments, which are Tools & Storage, Security, and Industrial products.
The company has produced excellent growth rates in recent years, due in large part to an aggressive acquisition strategy.
Stanley Black & Decker’s growth prospects are promising. The company maintained a strong growth rate in 2021, even as the global economy was experiencing a normalization to adjust for the coronavirus pandemic and dealing with supply chain issues.
Stanley Black & Decker reported fourth-quarter and full-year earnings results on 2/01/2022. For the fourth quarter, revenue increased 2.0% to $4.1 billion, while adjusted earnings-per-share fell 35% to 2.14. However, this was compared to the Q4 2020 adjusted earnings-per-share growth rate of 51% to $3.29, which was exceptionally high.
Organic revenue growth was -3% for Tools & Storage and -6% for Industrial products for the quarter, as price benefits were more than offset by commodity inflation and volume declines.
Full-year revenues grew 20% to $15.6 billion while adjusted EPS improved 30% to $10.48. Free cash flow dropped to $144 million (versus $1.7 billion in the prior year).
Partly, it’s Stanley Black & Decker increasing inventory to capture the strong demand in 2021, but supply chain issues also drove inventory higher. Inventory ended up rising by $1.8 billion. The company expects the inventory to come back down by at least $500 million this year.
Stanley Black & Decker believes each segment will produce organic growth in 2022, with total company organic growth in the range of 7% to 8%. The company expects adjusted earnings-per-share in a range of $12.00 to $12.50 for 2022.
Acquisitions have helped shape Stanley Black & Decker’s product portfolio. For example, in 2017 Stanley Black & Decker closed on the $1.95 billion acquisition of the Tools business of Newell Brands (NWL). This acquisition strengthened the company’s foothold in tools and added the high-quality Irwin and Lenox brands to the product portfolio.
Not only that, but in 2017 Stanley Black & Decker also acquired the legendary Craftsman brand from Sears Holdings for $900 million. Both deals were immediately accretive to the company’s bottom line in 2017. Smaller acquisitions have continued in the years since.
Looking longer-term, management has a plan to continue growing into the future. The following statement from the company’s recent earnings call reiterates management’s confidence:
“We continue to invest selectively in growth catalysts, including innovation, e-commerce and electrification… Our product development plans are robust as we look to nearly double the number of professional power tool products we offer over the next 3 years… We believe that we have at least twice the [e-commerce] revenue… as our next closest competitor… It now represents a $2.5 billion channel for us globally, and it’s approaching 20% of our tool business revenue.”
(Source: Q4 2021 Earnings Call)
Competitive Advantages & Recession Performance
Stanley Black & Decker’s main competitive advantages are its brand portfolio, and global scale. Innovation and scalability are at the core of the company’s growth strategy. It has a leadership position in each of its three product categories and its brand strength gives the company pricing power, which leads to high profit margins.
Furthermore, it is relatively easy for the company to scale up its brands, thanks to distribution efficiencies.
To retain these competitive advantages, Stanley Black & Decker is constantly investing in product innovation. That said, Stanley Black & Decker is not immune from recessions. Earnings declined significantly in 2008 and 2009. As an industrial manufacturer, Stanley Black & Decker is reliant on a strong economy and a financially-healthy consumer.
Stanley Black & Decker’s earnings-per-share during the Great Recession are below:
- 2007 earnings-per-share of $4.00
- 2008 earnings-per-share of $3.41 (15% decline)
- 2009 earnings-per-share of $2.72 (20% decline)
- 2010 earnings-per-share of $3.96 (46% increase)
Despite the steep decline in earnings from 2007-2009, Stanley Black & Decker recovered just as quickly. Earnings-per-share increased another 32% in 2011 and reached a new high. Earnings have continued to grow in the years since.
Valuation & Expected Returns
Using the current share price of ~$164 and expected earnings-per-share for 2022 of ~$12.25, Stanley Black & Decker has a price-to-earnings ratio of 13.4. This is below the long-term average valuation of 16.5.
Stanley Black & Decker stock appears to be undervalued given that its price-to-earnings ratio is lower than its historical norm, which is also our fair value estimate for the stock. If the stock’s valuation were to expand to meet its historical average by 2027, investors would experience a meaningful 4.2% tailwind to annualized total returns over this time.
Going forward, returns will therefore likely be comprised of earnings growth, dividends, and valuation multiple expansion. Due to organic growth and acquisitions, we feel that an expected EPS growth rate of 8% per year is sustainable.
The stock has a current dividend yield of 1.9%. Based on this, total returns would reach approximately 14.1% per year, consisting of earnings growth, dividends, and valuation multiple expansion. This is an attractive rate of return, meaning Stanley Black & Decker earns a buy recommendation.
Stanley Black & Decker is not a high-yield stock, but it has all of the qualities of a strong dividend growth stock. It has a top position in the industry, strong cash flow, and durable competitive advantages.
The company has a positive growth outlook, which bodes well for the dividend. The stock appears undervalued today. Additionally, Stanley Black & Decker will very likely continue to hike its dividend each year for the foreseeable future.
Since the stock is expected to produce about 14% annualized total returns over the next five years, Stanley Black & Decker stock remains a buy for long-term dividend growth investors.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: