Dividend Aristocrats

Stanley Black and Decker Stock, a 52 Year Dividend Aristocrat

Stanley, Black & Decker Stock (SWK) is a member of the prestigious S&P 500 Dividend Aristocrats index. The aristocrats are 64 stocks in the S&P 500 that have consistently raised their dividend payments every year for at least 25 years, without missing a single year.

Dividend Aristocrats have lived through many economic boom and bust cycles including the technology bubble of 2002, the great 1987 stock market crash, the 2008 financial crisis among others, however they have survived and thrived till present times.

The resilience of their business models, strong and skillful management, competitive moats around their business is what makes them a long term stock holding in many investors’ portfolios.

Stanley Black & Decker has raised dividends for 52 consecutive years, and has paid dividends for 144 years. Management last raised its dividend by 4.5% from 66 cents a share in April 2019 to 69 cents a share in July 2019 quarter.

In this article, we study Stanley Black and Decker’s business operations and latest financial results, inspect dividend growth history and compare stock’s valuation and long term performance to its peers in the industry and the S&P 500.

Table of Contents

This article is broken down in to sections, feel free to jump to the area that interests you.

Business Synopsis

Founded in 1843 by Frederick Stanley and after its merger with The Black & Decker Corporation in March, 2010, Stanley Black & Decker was born.

The company sells hand and power tools, related accessories, commercial electronic security systems, automatic doors and oil & gas equipment. It reports financial results in 3 operating segments.

  • Tools and Storage
  • Industrial
  • Security

The biggest revenue generating segment is tools and storage accounting for 70% of total revenues generated in 2019. The 2nd biggest segment is Industrial generating $2.4 billion followed by Security at $1.9 billion.

In 2019, the company generated $14.4 billion in total revenues and 59% of those came from the United States, 20% from Europe and 13% from Emerging Markets.

We like this company due to its globally recognized franchises. It holds #1 ranking in Tools and Storage and #2 in Commercial Electronic Security. Some of the top brands within Tools and Storage include DeWalt, Craftsman, Lenox, Stanley, Irwin and Black & Decker. The attached screenshot from the company’s Investor Presentation shows top brands owned.

Revenue Analysis and Share Buybacks

For full year 2019, Stanley Black & Decker generated $14.44 billion in total revenues and earned a net income of $955.8 million, implying a net profit margin of 6.6%. Revenues grew 3.3% year over year from 2018’s $13.982 billion.

Over the last decade, Stanley Black & Decker has grown its revenues from $7.497 billion in 2010 to $14.44 billion in 2019. This represents a very healthy 7% compounded annual growth rate (CAGR) in revenues. Not many companies can beat this kind of revenue growth and performance.

Trading on the New York Stock Exchange, Stanley Black & Decker sports a $16.6 billion market capitalization and pays a 2.6% dividend yield. This yield is quite decent, and beats the yield on the S&P 500 by 60 basis points.

In line with revenue growth, management has also grown dividend payments at 5.8% compounded annual growth rate (CAGR) over the last 5 years.

Screenshot displayed below shows how management has attained a 5% compounded annual growth rate (CAGR) in revenues since 2015.

Even more impressive is an 8% adjusted earnings per share growth annualized over 5 years and strong free cash flows each year ranging from as low as $769 million in 2018 to $1.08 billion in 2019.

It is important for readers to note that Stanley Black and Decker has been able to grow revenues at a strong pace thanks to accretive acquisitions that add to the bottom line.

In January 2010, Stanley purchased Boeing supplier Consolidated Aerospace Manufacturing (CAM) for $1.5 billion. CAM generates annual revenues of $227.1 million and produces fittings, engineered products and fasteners for the aerospace industry with a big chunk of its sales to Boeing.

Another large acquisition was completed in June 2017 when Stanley acquired Newell Brands’s tool business for $1.95 billion adding popular brands such as Irwin and Lenox to its list.

By integrating Newell Brands in to its existing tool business, Stanley is able to achieve cost savings of between $80 to $90 million. Newell Brands generated $760 million in revenues in the 12 months preceding its acquisition.

In January 2017, Stanley also posted a sizable acquisition by purchasing Craftsman for $900 million from Sears Holding Corp. Craftsman produces lawnmowers, snowblowers and barbecue grills. Stanley expects this brand to produce up to $100 million in revenues annually for the next 10 years.

Growth opportunity is huge for Craftsman as only 10% of its branded products were sold outside of Sears retail channels. This could be expanded to online channels like Amazon, Home Depot, Lowe’s and other companies.

Here is a useful link from CrunchBase that summarizes all of Stanley’s acquisitions since 2012.

Growth Outlook

For 4th Quarter 2019 earnings released on January 29th, 2020, Stanley reported $3.7 billion net sales growing 2% year over year due to a 1% increase in volume, 1% pricing, 1% to acquisitions offsetting unfavorable currency swings of -1%. Gross margin for the quarter declined by 160 basis points year over year to 31.7%.

James Loree, President & CEO, quotes, “Stanley Black & Decker delivered a strong 2019 overcoming approximately $445 million in external headwinds. We generated above-market organic growth of 3%, low single digit adjusted EPS growth and robust free cash flow in a dynamic operating environment.”

For full year 2020, management expects 3% organic revenue growth and earnings per share between $8.80 to $9 per share, which would be up between 5% to 7% from 2019 EPS.

It expects highest growth to occur in Tools and Storage segment with mid single digits growth versus a flat Industrial segment and low single digits growth in Security.

Dividend Growth History

Stanley Black and Decker is a dividend aristocrat stock having grown dividends for 52 consecutive years. With data from the company’s Investor Relations website, management has grown dividends from 90 cents a share in 2000 to $2.7 per share in 2019.

This represents a compounded annual growth rate (CAGR) of 5.7% which is relatively healthy and strong.

Attached chart displays a nice steady uptrend in the company’s dividend growth history. Judging by the dividend payout ratio of just 37% (see section on dividend payout ratio), this dividend has room to grow for many more years.

Chart below also shows the year over year growth in Stanley’s dividends. For most years, the growth has been in the mid single digits of 5%. During the great financial crisis, this rate of growth slowed to 2-3% annually and rebounded sharply in 2011 when management raised dividends by greater than 20%.

Measuring the Dividend Payout Ratio

Lets calculate the the dividend payout ratio for Stanley Black & Decker. Dividend Payout Ratio measures how much of a company’s free cash flow is paid out in the form of dividends.

Free cash flow is the cash a company generates from daily operating activities minus capital expenditures like investing in new plants or equipment.

Free cash flow is calculated from the statement of cash flows, and is not artificially modified using accounting rules or non-cash expenses like depreciation, amortization, fair value revaluations, etc.

In 2019, Stanley Black & Decker generated $1.506 billion in cash flows from operations and spent $425 million in capital expenditures. What is the free cash flow?

Free Cash Flow = Cash from Operations – Capital Expenditures

Free Cash Flow = $1.506 billion – $425 million

FCF = $1.081 billion

For fiscal 2019, Stanley Black & Decker paid out $402 million in dividends. So what is the dividend payout ratio?

Dividend Payout Ratio = Total Dividends Paid / Free Cash Flow

Dividend Payout Ratio = $402 million / $1.081 billion

DPR = 37%

A dividend payout ratio of 37% is very strong leaving cash for future dividend increases, making smart and accretive acquisitions, share repurchases and increasing sales staff to grow revenues.

Long Term Performance

Stanley Black & Decker Stock has grown in price from $19 in January 1990 to $107.74 as of April 2020. This represents a compounded annual growth rate (CAGR) of 6% over a period of 30 years.

Readers should note that due to Covid-19 Pandemic, Stanley’s stock dropped from a high of $172.8 to $107.74. If we take the pre-pandemic price of $172.8, the long term compounded annual growth rate sweetens to 7.65% over 30 years.

Attached chart displays Stanley Black & Decker Stock’s long term performance. During the great financial crisis of 2008, the stock dropped from a peak of $47.57 in June 2007 to trough of $17.66 in March 2009.

This loss resulted in 63% of the stock’s value being wiped out, higher than the S&P 500’s drop of 56%.

Stock Valuation

Bloomberg Analysts’ Consensus expects Stanley Black & Decker to earn $6.58 in earnings per share for 2020. Using the current stock price of $107.74 and dividing in to the expected earnings, we arrive at a forward price to earnings ratio of 16.4 times. As a comparison, the S&P 500 currently trades at a forward PE of 19 times earnings.

Stanley Black & Decker is indexed in the S&P 500 Industrial Sector (XLI) which means the stock is more volatile in nature than other “safe stocks” from Utilities, Consumer Staples and Real Estate sectors.

While Stanley trades at 16.4 times forward earnings, the S&P 500 Industrial sector trades at 17.5 times future earnings meaning Stanley is trading at a cheaper valuation to its peers.

Executive Summary

Here is what we like and don’t like about Stanley Black & Decker Stock.

Likes

  • 52 years of growing dividends making this a dividend aristocrat stock.
  • Dividend payout ratio of just 37%. This leaves lots of cash flow for making smart acquisitions that add to bottom line, increase dividend payout and repurchase shares.
  • Revenue growth of 7% CAGR over 10 years due to skillful management making profitable acquisitions and adding to the company’s strong list of brands.
  • A nice dividend yield of 2.6%.

Dislikes

  • Net profit margin of 6.6% is quite low for this industry and during an economic downturn, the company could face huge losses and lose a charge chunk of its stock’s value e.g. the great financial crisis of 2008.
Market Capitalization $16.6 Billion
Dividend Yield 2.6%
Forward PE Ratio 16.4 times 2020 earnings
Dividend Growth (5 Year Avg.) 5.8%
Dividend Payout Ratio 37%
EPS Growth (5 Year Avg.) 3.4%
2019 Revenues $14.44 Billion
Gross Margin 33.6%
Net Margin 6.6%

Stanley Black & Decker Stock Dividend Dates

Table attached summarizes Stanley Black & Decker Stock’s dividend payment dates.

Declared Record Payable Amount Type
04/17/20
06/02/20
06/16/20
$0.69 Regular Cash
02/20/20
03/03/20
03/17/20
$0.69 Regular Cash
10/15/19
11/29/19
12/17/19
$0.69 Regular Cash
07/17/19
09/03/19
09/17/19
$0.69 Regular Cash
04/17/19
06/04/19
06/18/19
$0.66 Regular Cash
02/12/19
03/05/19
03/19/19
$0.66 Regular Cash
10/17/18
11/30/18
12/18/18
$0.66 Regular Cash
07/18/18
09/07/18
09/18/18
$0.66 Regular Cash
04/19/18
06/06/18
06/19/18
$0.63 Regular Cash
02/27/18
03/09/18
03/20/18
$0.63 Regular Cash

Stanley Black and Decker Stock Price

To view the most recent stock price of Stanley Black and Decker, visit the company’s Investor Relations site and select “Stock Quote and Chart.”

 

 

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