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

Dividend Growth Score

Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

SWK’s dividend Growth Score of 72 is above average and suggests that the company should be able to deliver solid dividend growth for many years to come. With 48 straight years of dividend increases and dividend aristocrat status, this probably comes as no surprise.

Dividend growth has averaged around 5% in recent years, but SWK’s 40% payout ratio and solid free cash flow generation provide plenty of room for continued increases. However, the company has a target payout ratio of 30-35% so near-term dividend growth will likely remain in the 4-6% range if we had to guess.

Source: Simply Safe Dividends

Valuation

Stanley Black & Decker, Inc. (NYSE:SWK) trades at about 15x forward earnings and has a dividend yield of 2.4%, which is in line with its five year average dividend yield.

Management believes SWK’s earnings can grow at 10-12% per year over the next three years. We think a mid- to upper-single digit earnings growth rate is reasonable over the long term considering the size of SWK’s markets and its many opportunities to leverage its brands and distribution channels.

Under this scenario, the stock’s valuation looks very reasonable and appears to offer 7-10% annual total return potential. For such a high quality business in today’s market environment, that doesn’t sound too bad.

Conclusion

As a blue chip dividend stock, SWK has one of the best dividend track records an income investor will find. Few companies have existed for 175 years, much less paid a dividend for 139 consecutive years. With continued product innovation and brand investment, we believe SWK’s products will be in demand for many years to come. The company will face its ups and downs depending on currency exchange rates and macro trends in key markets such as construction, but we expect its profits to continue marching higher over long periods of time. Given its long-term prospects, SWK appears attractively valued today.

Disclosure: None