Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. The best dividend paying companies are the ones you can count on. So today, we’re going to review one of the best dividend stocks around. Let’s take a look at Stanley Black & Decker’s dividend history and safety…
Business Overview and Highlights
On April 5, 2019 Stanley Black & Decker (NYSE: SWK) announced that it’s been recognized as the 28th most reputable company in the United States, according to the Reputation Institute’s US RepTrak®. The Reputation Institute ranks the 100 most reputable companies in the United States ever year. This is Stanley Black & Decker’s first time appearing on the list. Appearing on the Reputation Institute’s list builds Stanley Black & Decker’s credibility by delivering data-driven insights into how they operate.
Stanley Black & Decker is a $21 billion business based out of Connecticut. The company employs 60,800 people, and last year they pulled in $14 billion in sales. That works out to $230,000 per employee. Stanley Black & Decker is the world’s largest tools and storage business, and the world’s second largest commercial electronic security services company.
The company operates within the industrial sector and maintains a solid credit rating (A) from the S&P. This allows Stanley Black & Decker to issue cheap debt to expand operations and finance other initiatives.
On February 12, 2019 the company’s board of directors announced a quarterly cash dividend of $0.66 per share.
10-Year Dividend History
Stanley Black & Decker has an impressive 142-year streak of consecutive dividend payments. Having raised their dividend for 50+ consecutive years, they are also Dividend Kings. As you’d expect, their dividend has steadily increased over the last decade. The company paid investors $1.3 per share in 2009. Over the last 10 years, the dividend has climbed to $2.58. That’s a 98% increase and you can see the annual changes below…
The compound annual growth is 7.1% over 10 years, but over the last year, the dividend climbed 6.6%. The slowdown in dividend growth isn’t a great sign. Although, Stanley Black & Decker still might be a good income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Stanley Black & Decker’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 1.86% and that’s below the 10-year average of 2.54%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 Stanley Black & Decker earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety, but accountants manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Stanley Black & Decker’s payout ratio based on free cash flow over the last 10 years…
Except for an anomalous 2017 spike, the trend is steady. Despite reporting their lowest operating cash flow in over a decade, 2017 represented their highest operating income ever. The payout ratio returned to 50% last year. This gives wiggle room for the company’s board of directors to raise the dividend going forward. Stanley Black & Decker’s dividend is as sturdy as the tools they make.
Good investing,
Peter
