Updated March 23, 2021 by Bob Ciura
Simply put, an investment in high quality dividend growth stocks can result in great long-term returns. Investors seeking dividend income and sustainable growth should start with Dividend Aristocrats, an exclusive group of companies that has increased its dividends for over 25 consecutive years.
With that in mind, we’ve compiled a complete list of all 65 Dividend Aristocrats along with key financial metrics like dividend yields and value for money.
You can download an Excel spreadsheet with the full list of Dividend Aristocrats from the link below:
There are only 65 Dividend Aristocrats. This article introduces the diversified industrial manufacturer Stanley Black & Decker (SWK).
Stanley Black & Decker has an amazing track record of paying dividends. The company has paid dividends for 144 years and increased its dividend each year for 53 consecutive years. Today, the company’s dividend seems very secure relative to underlying fundamentals.
Today it is an even more exclusive club than the Dividend Aristocrats. Stanley Black & Decker is a member of the Dividend Kings, a group of just 31 companies with more than 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 explains the characteristics that made Stanley Black & Decker a proven dividend growth stock.
Stanley Black & Decker is the result of Stanley Works’ acquisition of Black & Decker for $ 3.5 billion in 2009. Stanley Works and Black & Decker are both named after their respective founders. Stanley Works was founded in 1843 when Frederick Stanley opened a small business in New Britain, Connecticut, making bolts, hinges, and other hardware. Its products developed a reputation for their quality.
In the meantime, Black & Decker was founded in 1910 by Duncan Black and Alonzo Decker. Like Stanley, they opened a small hardware store. In 1916 they were granted a patent to manufacture the world’s first portable power tool. Over the next 175 years, Stanley Black & Decker has grown steadily into one of the world’s largest manufacturers of industrial products.
Source: Investor Presentation
The main products include hand tools, power tools and related accessories. It also manufactures electronic security solutions, healthcare solutions, engineering fastening systems, and more.
Sales growth has accelerated over the past two decades. Today Stanley Black & Decker has a market cap of $ 32 billion, making it a large-cap stock. The company has annual sales of more than $ 14 billion. The company operates three businesses: Tools & Storage, Security, and Industrial Products.
The company has achieved excellent growth rates over the past few years, thanks in large part to an aggressive acquisition strategy.
Stanley Black & Decker’s growth prospects are promising. The company saw strong growth in 2020 despite the negative impact of the coronavirus pandemic on the global economy. Stanley Black & Decker reported fourth quarter and full year results on January 28, 2021. In the fourth quarter, revenue rose 18.6% to $ 4.4 billion, while adjusted earnings per share rose 51% to $ 3.29.
Organic revenue growth was 16% for the quarter, compared to a consensus estimate of 9.9% and corporate guidance of 10%. Each geographic region had organic growth of 15% or more, with North America up 27% and emerging markets up 32%. North America benefited from a strong retail market, emerging market growth was driven by strong construction demand, and Europe benefited from growth in all regions.
Full year revenue increased 1% to $ 14.5 billion, while adjusted earnings per share improved 7.6% to $ 9.04. Free cash flow increased 55% to a company record of $ 1.7 billion for the year. Stanley Black & Decker anticipates that each segment will experience organic growth in 2021, with the company’s overall organic growth expected to be between 4% and 8%. The company expects adjusted earnings per share in a range of $ 9.70 to $ 10.30 in 2021.
Acquisitions have shaped the Stanley Black & Decker product portfolio. For example, in 2017 Stanley Black & Decker completed the acquisition of Newell Brands’ tooling business, valued at $ 1.95 billion. This acquisition strengthened the company’s position in tools and added the high-quality Irwin and Lenox brands to its product portfolio.
Additionally, Stanley Black & Decker acquired the iconic Craftsman brand from Sears Holdings (SHLD) for $ 900 million in 2017. Both transactions had an immediate positive effect on the company’s results in 2017. Smaller acquisitions have continued in recent years.
In the long term, management has a plan to keep growing over the next ten years. The company plans to invest more in its industrial segment, which should generate 25% of total sales by 2022. Overall, Stanley Black & Decker believes it can increase long-term organic sales by 4% to 6% per year. along with double-digit total sales and adjusted EPS growth per year.
Competitive advantage and recession performance
Stanley Black & Decker’s key competitive advantages are brand portfolio and global size. Innovation and scalability are at the heart of the company’s growth strategy. The company holds a leadership position in each of its three product categories, and its brand strength gives the company value for money, resulting in high profit margins. Additionally, thanks to the sales efficiency, it’s relatively easy for the company to grow its brands.
To maintain this competitive advantage, Stanley Black & Decker constantly invests in product innovations. Even so, Stanley Black & Decker is not immune to recessions. The result fell significantly in 2008 and 2009. As an industrial manufacturer, Stanley Black & Decker relies on a strong economy and a financially healthy consumer.
Stanley Black & Decker’s earnings per share during the Great Recession are shown below:
- 2007 earnings per share of $ 4.00
- 2008 earnings per share of $ 3.41 (down 15%)
- 2009 earnings per share of $ 2.72 (20% decrease)
- 2010 earnings per share of $ 3.96, up 46%
Despite the sharp drop in earnings from 2007 to 2009, Stanley Black & Decker recovered just as quickly. In 2011, earnings per share rose by a further 32% and reached a new high. The result has continued to grow in recent years.
Valuation and expected return
Using the current share price of ~ $ 194 and expected earnings per share for 2021 of $ 10.00, Stanley Black & Decker has a P / E ratio of 19.4. This is above the ten-year average rating of 15.7 that the stock has held since 2008.
Stanley Black & Decker stock appears to be overvalued as its price / earnings ratio is higher than its historical norm, which is also our estimate of the fair value for the stock. If the stock’s valuation shrank to hit its historical average by 2026, investors would experience significant headwinds of 4.1% against total annualized returns over that period.
Moving forward, therefore, returns are likely to consist of earnings growth and dividends that offset the multiple contraction in valuation. Due to the organic growth and the acquisitions, we consider an expected EPS growth rate of 8% per year to be sustainable.
The stock also has a current dividend yield of 1.4%. On that basis, the total return would be roughly 5.3% per year, made up of earnings growth and dividends that offset the multiple contraction in valuation. This is a relatively modest return, which means Stanley Black & Decker is getting a hold recommendation.
Stanley Black & Decker isn’t a high-yielding stock, but it has all of the characteristics of a high-dividend-growing stock. It has an industry leadership position, strong cash flow, and lasting competitive advantage.
The company has positive growth prospects, which is good for the dividend. The stock seems overvalued today, but at the same time, it is very likely that Stanley Black & Decker will keep raising dividends every year for the foreseeable future.
With the stock expected to generate mid-single digit annualized total return over the next five years, Stanley Black & Decker remains a focal point for investors with long-term dividend growth.
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