Updated on September 26th, 2023 by Bob Ciura
Companies with long track records of dividend growth are among our favorite stocks. This is because long dividend growth streaks demonstrate a company’s ability to increase its distributions through a recession.
The income needs of investors don’t disappear during recessions, so they have to be as confident as possible that their investments will continue to raise dividends.
Companies with more than 50 years of dividend growth have managed to navigate multiple recessions and still increase their payments.
You can see all 50 Dividend Kings here.
You can also download an Excel spreadsheet with the full list of Dividend Kings (plus important metrics such as price-to-earnings ratios and dividend yields) by clicking on the link below:
This milestone is impressive for any company, but even more so for those that are extremely sensitive to the conditions of the economy.
One of the more cyclical Dividend Kings is Stanley Black & Decker (SWK).
This article will examine the company’s business, prospects for growth, and future returns in an effort to determine if now is the right time to purchase this Dividend King.
Stanley Black & Decker is a global leader in the area of power tools, hand tools, and related products. The company maintains the top position in tools and storage sales worldwide. SWK operates in the industrial sector.
The company is composed of three segments: tools & outdoor, and industrial.
Source: Investor Presentation
In the 2023 second quarter, revenue fell 5.3% to $4.2 billion, but this was $70 million more than expected. The company reported an adjusted earnings-per-share loss of $0.11, compared with a profit of $1.77 per share in the same quarter last year.
Organic growth fell 4% for the quarter. Organic sales for Tools & Outdoor, the largest segment within the company, declined 5% as a 1% benefit from pricing was once again more than offset by a decline in volume. North America was down 6% while Europe was lower by 3% for the quarter.
Stanley Black & Decker’s earnings-per-share are flat over the last decade. In the years since, Stanley Black & Decker has generally seen its earnings-per-share rise consistently before 2022.
We now expect the company to grow earnings-per-share at a rate of 8% annually going forward as Stanley Black & Decker’s results are starting from a low base.
Stanley Black & Decker has become the worldwide leader in tools and related products because of its iconic brands like Stanley, DeWalt, and Black & Decker. These names are known and trusted by professional contractors as well as do-it-yourself customers.
This should help propel growth once supply chain constraints and higher inflationary pressures ease.
Source: Investor Presentation
While organic growth has been solid during the past decade, the company also benefited from strategic acquisitions. In fact, the company has allocated around $10 billion in acquisitions since 2005 to advance growth opportunities.
Perhaps its most significant acquisition was the purchase of the Craftsman brand from Sears Holdings for $900 million in 2017.
We expect the company to grow earnings-per-share by 8% per year over the next five years.
Competitive Advantages & Recession Performance
Stanley Black & Decker’s key competitive advantage remains its well-known brands. The company also spends heavily on research and development in order to bring new products to market.
Like most cyclical companies, Stanley Black & Decker needs a financially healthy consumer and for the economy to be on solid ground to deliver bottom-line growth.
This was not the case during the Great Recession. Listed below are the company’s adjusted earnings-per-share results before, during, and after the last recession.
- 2007 adjusted earnings-per-share: $4.00 (15.3% increase)
- 2008 adjusted earnings-per-share: $3.41 (14.8% decrease)
- 2009 adjusted earnings-per-share: $2.72 (20.2% decrease)
- 2010 adjusted earnings-per-share: $3.96 (45.6% increase)
As you can see, Stanley Black & Decker was far from immune to the last recession. Adjusted EPS fell more than 30% from 2007 to 2009. However, the company quickly recovered and posted a new high for adjusted EPS by 2010.
Due to the current, highly inflationary environment, the company’s earnings are expected to plummet in fiscal 2023. As has been the case in the past, however, we expect the company’s margins to expand back to their normal levels once the current macro headwinds ease.
Valuation & Expected Returns
Stanley Black & Decker’s current share price is ~$82. The company expects adjusted earnings-per-share in a range of $0.70 to $1.30 for 2023. However, this includes significant one-time items affecting profitability this year, which are not expected to recur.
Therefore we believe that the company has earnings power of $8.38 per share. Based on this, SWK stock has a 2023 price-to-earnings ratio of 9.8. We reaffirm our fair value P/E of 12 times earnings given the ongoing struggles with inflation.
Still, if the P/E ratio expands from 9.8 to 12 over the next five years, this would increase annual shareholder returns by 4.1% per year over this period.
Including 8% expected EPS growth and the 3.9% dividend yield, total returns are expected to reach 16.0% per year over the next five years.
Stanley Black & Decker is the undisputed leader in its industry. The company continues to invest in R&D as well as pursue acquisitions that should enable the company to continue to grow.
Stanley Black & Decker also has more than five decades of dividend growth, proving itself capable of growing its dividend even under adverse economic conditions.
The stock appears to be reasonably valued, with a five-year expected return of 16% per year. As a result, we rate Stanley Black & Decker a blue-chip stock to buy for dividend growth and attractive total returns.
The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.