STANLEY BLACK & DECKER INC. $152(New York symbol SWK; Conservative-Growth Payer Portfolio, Manufacturing & Industry sector; Shares outstanding: 154.1 million; Market cap: $23.4 billion; Dividend yield: 1.7%; Dividend Sustainability Rating: Above Average; www.stanleyblackanddecker.com) started up in 1843 and is now one of the world’s largest makers of hand and power tools for consumers. In addition to Stanley and Black & Decker, its top-selling brands include DeWalt, Craftsman and Irwin.
Five decades of rising dividends
Stanley last raised its quarterly dividend in September 2017. Investors now receive $0.63 a share, up 6.1% from $0.58. The new annual rate of $2.52 yields 1.7%. The company has paid dividends continuously for 141 years, and has raised the annual rate each year for the past 50 years.
Tools and storage products accounted for 70% of Stanley’s 2017 sales and 72% of its profits, followed by Industrial products (15% of sales, 17% of profit) and building security systems (15%, 11%).
The company’s overall sales rose 4.1%, from $10.9 billion in 2013 to $11.3 billion in 2014. Overseas markets account for about half of Stanley’s sales, and due to the negative impact of currency rates, its total revenue slipped to $11.2 billion in 2015. However, sales rebounded to $11.4 billion in 2016, and rose again to $12.7 billion in 2017.
Total earnings surged 135.8%, from $520 million in 2012 to $1.2 billion in 2017. Stanley is an aggressive buyer of its own shares. As a result of fewer shares outstanding, per-share profits jumped 145.1%, from $3.28 to $8.04.
The higher sales and earnings are largely due to acquisitions. Since 2002, the company has spent $8.9 billion to buy related firms. That’s on top of its $4.5 billion all-stock purchase of rival toolmaker Black & Decker in March 2010.
Since then, Stanley has completed two major acquisitions, both in March 2017: it bought the Craftsman hand and power tools business from Sears Holdings Corp. (Nasdaq symbol SHLD), and the hand-tool businesses (Lenox and Irwin) of Newell Brands (New York symbol NWL).
In December 2017, the company also agreed to purchase the industrial business of Nelson Fastener Systems for $440 million. That operation makes welding equipment for construction and industrial customers. The company expects to complete the purchase in the first half of 2018.
Ambitious growth target
Stanley aims to increase its annual revenue to $22 billion by 2022, so it will probably continue to make acquisitions. The company has a strong history of absorbing new operations, which helps cut the risk of using those purchases to expand.
Its balance sheet is also strong. Stanley’s long-term debt as of December 31, 2017, was $2.8 billion, or just 12% of its market cap. It also held cash of $637.5 million.
The company expects cutting jobs and closing some plants at its new businesses will boost its 2018 earnings per share by $0.50. The recent changes to the U.S. tax code will add a further $0.20 a share.
As a result, Stanley expects to earn $8.45 a share this year. The stock trades at a reasonable 18.0 times the midpoint of that range.
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