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Will Stanley Black Lose Appeal on 6-Year Low Dividend Yield?
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Stanley Black & Decker, Inc. (SWK - Free Report) has been in the limelight following its stellar third-quarter performance and increased projections for 2017. However, its dividend yield — currently at its lowest level since 2011 — raises our concern.
Before we proceed, a quick discussion on the relevance of dividend yield and the company’s dividend history might be helpful.
What Dividend Yield Means?
By definition, dividend yield is the percentage of the company’s dividend per share paid in a year relative to the stock price. In addition, a forward dividend yield can also be calculated by using the proposed quarterly dividend rate or the last paid quarterly dividend and multiplying the same by four in place of actual dividend paid in a year.
High dividend yields generally mean that the company believes in rewarding its shareholders handsomely through dividend payments. These stocks can be suitable investment options for investors seeking constant returns. However, we believe that such rewards sometimes come at the expense of opportunities lost for using resources in enhancing the company’s growth prospects. Additionally, high dividend yield might also indicate that the company is currently undervalued when compared with its strong fundamentals and vice versa.
Stanley Black & Decker’s Dividend History
This industrial tools maker has a solid history of returning value to its shareholders. It has been paying annual dividends for the last 141 consecutive years while regular quarterly payments are roughly 490 quarters old. Also, since 1968, the company has hiked its dividend rate every year.
Specifically, the company’s annual dividend rate has been hiked six times from $1.64 per share in 2011 to $2.52 in 2017. Despite increments in the annual rate, we see that the company’s dividend yield has moved south from roughly 2.4% in 2011 to 2% in 2016. It currently is 1.5%.
Impact of Falling Dividend
Going by numbers, a falling dividend yield might be a concerning factor for Stanley Black & Decker. An investor interested in regular flow of income might be unhappy with these statistics, unless the company uses another dividend rate hike as bait.
However, we believe that the other side of this picture needs to be considered before drawing any conclusions. Since 2011, the company’s share price has increased roughly 150.7%, clearly outpacing the growth of 53.7% in the company’s annual dividend rate. This share price rally has been largely responsible for the company’s falling dividend yields over the years. Also, the current scenario suggests that the stock is overvalued. So, is it the time to rethink about the stock?
The stock might interest investors, who along with regular cash flow are also interested in capital gains.
Stanley Black & Decker’s earnings per share have grown from $5.24 in 2011 to $6.51 in 2016. For the current year, the company anticipates earnings to be within the $7.33-$7.43 per share range (increased from the previous projection of $7.18-$7.38). The mid-point of the revised guidance reflects 13.4% increase from the year-ago tally. Benefits accrued from higher organic revenue growth (of roughly 6%), operational excellence and synergistic gains from acquired assets are predicted to be primary growth drivers. Its solid product portfolio gives it a competitive edge over the other players like Kennametal Inc. (KMT - Free Report) , Actuant Corporation and Lincoln Electric Holdings, Inc. (LECO - Free Report) , in the industry.
By 2022, the company aims to become a well diversified industrial company. Total revenues are anticipated to grow roughly 10-12% (CAGR), including organic sales growth of 4-6% and acquisition revenues of roughly $6-$8 million. Earnings per share are predicted to grow 10-12% or roughly 6-8% excluding acquisitions. Healthy segmental performance is anticipated with Industrial revenues of $5-$6 billion, Tools & Storage revenues of $12-$14 billion and Security revenues in the $3-$4 billion range. Free cash flow will be greater than or equal to net income.
The company’s dividend payout was 34.1% in the third quarter, better than 32.5% for the peer group. Also, its current dividend yield of 1.5% is above 1.2% for the peer group.
Anticipated growth in earnings, solid cash flow and favorable payout ratio will ensure healthy dividend payments. These positive aspects along with solid long-term opportunities are expected to consistently boost the company’s share price, resulting in capital gains to investors.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Will Stanley Black Lose Appeal on 6-Year Low Dividend Yield?
Stanley Black & Decker, Inc. (SWK - Free Report) has been in the limelight following its stellar third-quarter performance and increased projections for 2017. However, its dividend yield — currently at its lowest level since 2011 — raises our concern.
Before we proceed, a quick discussion on the relevance of dividend yield and the company’s dividend history might be helpful.
What Dividend Yield Means?
By definition, dividend yield is the percentage of the company’s dividend per share paid in a year relative to the stock price. In addition, a forward dividend yield can also be calculated by using the proposed quarterly dividend rate or the last paid quarterly dividend and multiplying the same by four in place of actual dividend paid in a year.
High dividend yields generally mean that the company believes in rewarding its shareholders handsomely through dividend payments. These stocks can be suitable investment options for investors seeking constant returns. However, we believe that such rewards sometimes come at the expense of opportunities lost for using resources in enhancing the company’s growth prospects. Additionally, high dividend yield might also indicate that the company is currently undervalued when compared with its strong fundamentals and vice versa.
Stanley Black & Decker’s Dividend History
This industrial tools maker has a solid history of returning value to its shareholders. It has been paying annual dividends for the last 141 consecutive years while regular quarterly payments are roughly 490 quarters old. Also, since 1968, the company has hiked its dividend rate every year.
Specifically, the company’s annual dividend rate has been hiked six times from $1.64 per share in 2011 to $2.52 in 2017. Despite increments in the annual rate, we see that the company’s dividend yield has moved south from roughly 2.4% in 2011 to 2% in 2016. It currently is 1.5%.
Impact of Falling Dividend
Going by numbers, a falling dividend yield might be a concerning factor for Stanley Black & Decker. An investor interested in regular flow of income might be unhappy with these statistics, unless the company uses another dividend rate hike as bait.
However, we believe that the other side of this picture needs to be considered before drawing any conclusions. Since 2011, the company’s share price has increased roughly 150.7%, clearly outpacing the growth of 53.7% in the company’s annual dividend rate. This share price rally has been largely responsible for the company’s falling dividend yields over the years. Also, the current scenario suggests that the stock is overvalued. So, is it the time to rethink about the stock?
Our Take
We believe that Stanley Black & Decker can still be considered a suitable investment option, as evident from its current Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The stock might interest investors, who along with regular cash flow are also interested in capital gains.
Stanley Black & Decker’s earnings per share have grown from $5.24 in 2011 to $6.51 in 2016. For the current year, the company anticipates earnings to be within the $7.33-$7.43 per share range (increased from the previous projection of $7.18-$7.38). The mid-point of the revised guidance reflects 13.4% increase from the year-ago tally. Benefits accrued from higher organic revenue growth (of roughly 6%), operational excellence and synergistic gains from acquired assets are predicted to be primary growth drivers. Its solid product portfolio gives it a competitive edge over the other players like Kennametal Inc. (KMT - Free Report) , Actuant Corporation and Lincoln Electric Holdings, Inc. (LECO - Free Report) , in the industry.
By 2022, the company aims to become a well diversified industrial company. Total revenues are anticipated to grow roughly 10-12% (CAGR), including organic sales growth of 4-6% and acquisition revenues of roughly $6-$8 million. Earnings per share are predicted to grow 10-12% or roughly 6-8% excluding acquisitions. Healthy segmental performance is anticipated with Industrial revenues of $5-$6 billion, Tools & Storage revenues of $12-$14 billion and Security revenues in the $3-$4 billion range. Free cash flow will be greater than or equal to net income.
The company’s dividend payout was 34.1% in the third quarter, better than 32.5% for the peer group. Also, its current dividend yield of 1.5% is above 1.2% for the peer group.
Anticipated growth in earnings, solid cash flow and favorable payout ratio will ensure healthy dividend payments. These positive aspects along with solid long-term opportunities are expected to consistently boost the company’s share price, resulting in capital gains to investors.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>