Stanley Black & Decker, Inc. (SWK): 139 Consecutive Years of Dividend Payments and Powerful Brands

Observing a company’s performance during the last recession is also helpful when it comes to evaluating the safety of a dividend. We can see that SWK’s sales fell by 17% in 2009, and its earnings were down nearly 30%. The company clearly has some sensitivity to the broader economy, which isn’t too surprising given its exposure to construction markets.

Source: Simply Safe Dividends

SWK’s economic sensitivity isn’t as big of a risk to the dividend payment because the company’s payout ratios are relatively low and it has been a free cash flow machine over the last decade. As seen below, SWK has generated positive and stable free cash flow each of the last 10 fiscal years, the sign of a very healthy business.

Source: Simply Safe Dividends

The business also generates a decent return on invested capital, which helps gauge the profitability and efficiency of a business. Companies with competitive advantages will generally earn returns in excess of 10%. Prior to the financial crisis and its acquisition of Black+Decker in 2010, which brought down SWK’s return on invested capital because it added substantial goodwill to the balance sheet, SWK earned double-digit returns.

Source: Simply Safe Dividends

Really the only strike against the safety of SWK’s dividend is the company’s balance sheet. While SWK does have an “A” credit rating from S&P, it has about $3.9 billion in debt compared to $293 million in cash on hand, which is less than the amount of dividends it paid last fiscal year ($321 million). The company needs to continue generating free cash flow, but its track record is excellent.

Source: Simply Safe Dividends

SWK’s relatively low payout ratios, consistent free cash flow generation, and firm commitment to paying its dividend make it one of the safer payments available in the market. While we would prefer to see further deleveraging, SWK is still very healthy financially.