Updated on December 3rd, 2021 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.
Investors’ income needs don’t disappear during recessions, so they have to be as confident as possible that their investments will continue to pay and raise dividends.
Companies with more than 50 years of dividend growth have managed to navigate multiple recessions and still increase their payments.
Achieving at least five decades of dividend growth is no small accomplishment. Only 35 stocks in the entire market have earned the right to call themselves a Dividend King.
You can see all 35 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 our favorite 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.
Stanley Black & Decker has the number two position in commercial electronic security and engineered fastening. The current company was created when Stanley Works and Black & Decker merged in 2010.
Stanley Black & Decker generated revenue of $14.5 billion in 2020. The company is composed of three segments: Tools & Storage, Industrial, and Security.
Source: Investor Presentation
Stanley Black & Decker announced third quarter results on 10/28/2021. Revenue grew 9.2% to $4.3 billion, which matched estimates. Adjusted earnings–per–share of $2.77 compared unfavorably to adjusted earnings–per–share of $2.89 in the prior year, but came in $0.30 above expectations.
Organic growth remained high, at 10% in the third quarter. Sales for Tools & Storage, the largest segment, grew 14% for the fifth consecutive quarter of double–digit growth. All regions had at least 9% organic growth.
As with prior quarters, new products, demand from professionals and home and garden continue to be bright spots for the company. Industrial organic growth inched higher by 1%. Infrastructure product revenue was up 7% as strength in attachment tools offset a weaker pipeline activity.
Security grew 5%, with North America seeing low double–digit growth. Commercial electronic security, automatic doors and healthcare were all areas of strength last quarter.
Stanley Black & Decker offered revised guidance once again. The company now expects adjusted earnings–per–share in a range of $10.90 to $11.10 for 2021, down from $11.35 to $11.65 previously.
Stanley Black & Decker has performed well over the last decade as adjusted earnings-per-share grew with an annual rate of more than 6% per year.
We expect the company to continue to grow earnings–per–share at a rate of 8% annually due to organic revenue growth and contributions from acquisitions.
Source: Investor Presentation
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.
While organic growth has been solid during the past decade, the company has also benefited from strategic acquisitions.
For example, Stanley Black & Decker added Newell Brands’ Tools business for almost $2 billion. This purchase gave the company access to the high-quality and well-known Irwin and Lenox brand tools.
Perhaps its most significant acquisition was the purchase of the Craftsman brand from Sears Holdings for $900 million in 2017.
More recently, Stanley Black & Decker acquired the remaining 80% of MTD Products that it did not already own. MTD is a privately held manufacturer of outdoor power equipment.
MTD’s product lines include Troy-Bilt, Remington and MTD Genuine Parts. This purchase gives Stanley Black & Decker more of a foothold in the outdoor power equipment space.
Stanley Black & Decker estimates the outdoor power equipment industry is worth over $25 billion. The full takeover of MTD gives Stanley a major foothold in this large and growing market.
Despite its top billing in its industry, Stanley Black & Decker continues to seek out acquisitions, both large and small, to augment its core businesses
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 key competitive advantage remains its well-known brands and its ability to supplement this portfolio with names like Craftsman and MTD.
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 financial 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.
- 2006 adjusted earnings-per-share: $3.47
- 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)
- 2011 adjusted earnings-per-share: $5.24 (32.3% increase)
As you can see, Stanley Black & Decker was far from immune from the last recession. Adjusted EPS fell more than 30% from 2007 to 2009.
However, the company rode the ensuring recovery and posted a new high for adjusted EPS by 2010.
Stanley again demonstrated its resilience in the 2020 economic recession caused by the coronavirus pandemic. The company maintained its high profitability and continued to increase its dividend, keeping its more than five-decade streak alive.
Valuation & Expected Returns
Stanley Black & Decker’s current share price is ~$177. Using expected EPS of $11 for 2021 (representing the midpoint of full-year guidance), the stock trades with a price-to-earnings ratio 16.1.
This is just below our five-year target price-to-earnings ratio of 16.5, which is in-line with the stock’s 10-year average valuation.
If the P/E expands from 16.1 to 16.5 over the next five years, shareholder returns would be boosted by 0.5% each year.
Total returns would consist of the following:
- 8% earnings growth
- 0.5% multiple expansion
- 1.8% dividend yield
In total, Stanley Black & Decker is projected to produce annual returns of 10.3% through 2026.
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 above 10% per year. As a result, we rate Stanley Black & Decker a blue-chip stock to buy for dividend growth and attractive total returns.
Further Reading: The 10 Best Industrial Stocks Now.
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