Summary
- SWK is a Dividend Aristocrat. SWK has increased their dividend for 51 consecutive years and is expected to do so once again in July.
- SWK's dividend payout ratio is just above 30%, well below our 60% threshold. It is right in management's target payout ratio range of 30-35%.
- SWK has a lower-than-expected five-year average dividend growth rate for a low-yielding dividend growth stock.
- The company's debt-to-equity ratio has remained relatively consistent over the last five years.
I've been taking some time this weekend to find potential undervalued dividend growth stocks to invest in. In the current market, finding true value has not been easy. That's why today, I will take a deeper look at a Stanley Black & Decker, Inc (SWK). The company would address a hole in my portfolio.
When I think of Stanley Black & Decker, my mind instantly takes me to power tools. The company possesses some of the top brands in the industry, including Stanley, DeWalt, Black & Decker, and Craftsman. But browsing the company's site, I was pleasantly surprised to learn that the company offers much more than hardware to consumers. The company also has major security and industrial divisions. Between the three segments, the company has built a global company that can service both consumers and businesses. A huge step towards helping the company avoid consumer cycles that have impacted so many other retail companies. Personally, the strong brands and strength in industries are exactly what I like to see when trying to identify a company that is committed to increasing their dividend for the long term.
Speaking of long-term history, the company has paid a dividend for 142 consecutive years. You read that correctly, SWK has rewarded shareholders since 1877. I mentioned in the introduction that SWK is a Dividend Aristocrat (25+ years of consecutive dividend increases). SWK has earned that title by increasing their dividend for 51 consecutive years. SWK should extend that streak at the end of the July. As we covered in our monthly Dividend Increases series, SWK is one of the few Dividend Aristocrats set to announce their dividend this month. It will come towards the end of July. The focus of our strategy is "long term." Does it get any more long term than paying a dividend for 142 consecutive years and increasing your dividend for 51 years?
Overall Strategy Review
Outside of the dividend, SWK is focused on becoming a global powerhouse. The company plans to grow organically and through acquisition. The company's plans for acquisition are very apparent when reviewing their most recent Investor Presentation on the investor relation website. The company is not afraid to acquire a company if it will help achieve the company's growth goals without sacrificing their financial objectives. An example of this in the past was the acquisition of Craftsman tools from Sears Holdings (OTCPK:SHLDQ). The acquisition allowed SWK to add another major brand to their portfolio, add a major revenue drive, and expand the company's global distribution channels. The slide from the presentation below provides more insight about the Craftsman acquisition.
As you can see, there was more to this acquisition than just making an acquisition for the sake of an acquisition. SWK will continue to grow through acquisition, but it won't do so if the acquisition does not make sense.
There was one other piece of information that caught my attention in the Investor Presentation. Being a Dividend Diplomat, of course, it relates to SWK's dividend. The company has committed to return 50% of their free cash flow to shareholders. This includes dividend payments and share repurchases, of course. What does this mean for the company's dividend? In the company's presentation, management disclosed that SWK's target dividend payout ratio is between 30% and 35%. Keep this number in mind, because it will come up once again in the next section.
