Stanley Works (SWK) Dividend Stock Analysis
The Stanley Works manufactures tools and engineered security solutions worldwide. The company, which has raised dividends for 42 consecutive years, is a member of the S&P Dividend Aristocrats index.
Since 1999 this dividend stock has delivered an average total return of 8.10% annually.
The company has managed to deliver a 6% average annual increase in its EPS between 1999 and 2008. Analysts expect Stanley Works to earn $2.42 share next year, followed by an increase to $3.06/share in the year after that. Back in November 2009, Stanley Works announced its intent to acquire Black & Decker (BDK) in an all stock deal subject to regulatory and shareholder approvals. The combined companies could realize significant synergies and enjoy a wider product base with little overlap between the two businesses. In addition to that the company is in the process of eliminating 10% of its staff, which could help offset weaker sales this year.
Return on Equity has fluctuated widely between 9% and 21% over the past decade. This indicator has spend of the time in the high teen’s however. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Annual dividends have increased by an average of 4.20% annually since 1999, which is much slower than the growth in EPS. A 4 % growth in dividends translates into the dividend payment doubling every eighteen years. If we look at historical data, going as far back as 1968, Stanley Works has actually managed to double its dividend payment every ten years on average.
The dividend payout ratio has consistently remained below 50% over the past five years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently the Stanley Works is overvalued at 22 times earnings, yields 2.70% and has an adequately covered distribution payment. Although the Black & Decker acquisition could be accretive to EPS, it could jeopardize the already weakened growth in distributions for Stanley Works such that the company freezes its payment for a few years. If it keeps raising distributions however I would look to enter a small position in Stanley Works (SWK) on dips below $44.
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