Is Stanley Black and Decker Stock a Buy?
October 18, 2022 at 12:00 PM EDT
Stanley Black and Decker stock is a Dividend King with many more years of dividend increases ahead of it.
The key takeaway is that Stanley Black and Decker is a trusted company with well-known brands. It has strong cash flows, ample free cash flows and can be expected to continue to pay its dividend and raise its distribution as well. The company has more than 50 years of consecutive annual dividend increases to its credit and has proven time and time again that it can withstand whatever the economy can throw at it.
History of Stanley Black and Decker
Stanley Black and Decker has a long history dating back to the original Stanley Bolt Manufactory, founded in 1843. It merged with several companies over the years until 2010, when it merged with Black and Decker.
Black and Decker was founded in 1910 in Towson, Maryland, where it is still headquartered today. The invention and patent of the first electric power drill was one of the company’s many innovations. Today, the company manufactures and markets tools, hardware, fasteners, home improvement accessories and security devices for homes and businesses. The company operates in three segments that cover multiple brand lines, including DeWalt, Porter-Cable and Craftsman. The company’s brand reach gives it about 5.3% market share relative to its competitors, which include Snap-on, The Toro Company and General Electric.
Stanley Black and Decker is one of the strongest dividend payers in the S&P 500 and the strongest of any industrial stock.
The company first began paying a dividend in the 1870s and has paid a dividend every year for more than 145 years, or 500 consecutive quarters.
The company began increasing the distribution as a means of improving stock ownership and shareholder value in 1968 and has the fundamental metrics to support annual increases for the next few decades at least.
Learn more: Are dividend stocks worth it?
SWK Highlights in 2022 and in the Future
Stanley Black and Decker brands have been able to maintain a competitive edge in 2022. The company has been able to sustain year-over-year (YOY) growth although the pace has slowed from the peak set in the wake of the pandemic.
Earnings growth has been harder to come by, with costs rising sharply on a YOY basis but there the outlook for improvement is positive. The company announced a major overhaul and cost-cutting effort mid-year that targets $1 billion in savings by 2023 and $2 billion by 2025. Efforts include realignment of its supply chain, getting closer to customers and driving a 35% gross margin. The 35% margin would be an 800-basis point improvement from Q2 2022 and would put the profit expectations back in line with historical norms.
The Stanley Black and Decker stock price has not moved in sync with the company’s revenue growth. The pressure on margins peak-COVID and the threat of recession in 2023 has pushed the stock price down more than 65% from its post-pandemic high. That’s bad news for those holding the stock but good news for new investors looking to get into a Dividend King at a good price. The move lower has the stock trading near 13x its earnings outlook as the end of the calendar year approaches and the dividend at the highest levels since before the pandemic began.
Shares of Stanley Black and Decker yield more than 4.2%, trading near $75.75 and the yield may go up before it goes down. General market conditions in Q4 2022 put pressure on all stocks, even blue-chip names like Stanley Black and Decker and may take the price action down to retest the lows set in 2020.
Pros and Cons of Buying Stanley Black and Decker Stock
What are the pros and cons of investing in Stanley Black and Decker stock?
Stanley Black & Decker is a Dividend King with more than 50 years of consecutive increases, making it a steady, stable source of income. Inflation cuts into the bottom line but realignment efforts are already underway. Stanley Black and Decker has a deep moat built around a portfolio of well-known, trusted brands that command a large market share in a fractured market. The company has a rock-solid balance sheet with a leverage ratio below 1.0x.
The general market conditions in 2022 have the stock trading at a value and paying a high 4.2% dividend yield. The company’s payout is safe, even with a contraction in margins and only 36% of the 2022 estimates. The payout ratio for 2023 should be even better.
Shares of SWK have been in a marked downtrend since early 2021 and it may not be over.
Stanley Black and Decker have begun realignment efforts but it still faces increased costs, margin pressure and weak earnings that may persist longer than expected. An economic slowdown in 2023 could put pressure on revenue outlook, margins and stock price.
Stanley Black and Decker is a higher-beta stock at 1.28 over the last five years and 1.27 in 2022. This means it may experience more volatility than the S&P 500 index.
How to Buy Stanley Black and Decker Stock
Let’s take a few steps for buying Stanley Black and Decker stock.
Step 1: Complete fundamental analysis.
First, take a deep, long look at Stanley Black and Decker stock to make sure it is right for your portfolio. Figure out the stock market cap, business profile, exposure, outlook and dividends. Do they match your investment objectives? If the stock does not match your needs and portfolio objectives, it is not a good fit, even if it is a good stock. If it does match, proceed to the next step.
Step 2: Take a look at technical analysis.
Next, look at the charts and decide at which price point you want to own Stanley Black and Decker. Consider starting with a small entry into this Dividend King and wait for opportune times to build on your position over time. Pyramiding into a larger position can not only reduce portfolio risk but enhance gains over time. At the same time, consider your exit strategy in case the market moves against you or what you’ll do as soon as you meet your investment objectives.
Step 3: Place your order.
Choose a brokerage account based on account size. No one position should take up too large an allocation and you should keep room in your order to allow secondary and follow-on orders. Using limit orders is also important to ensure proper order fills and to reduce slippage. A good until canceled order (GTC) will make sure the order stays open until it is filled or closed.
Step 4: Monitor your investment.
If the order is never filled, you may need to reposition your entry targets or move on to a different investment. If the order is filled, monitor your position so you can either exit as needed or add on to your positions. In the interim, you can also reinvest your dividends to add leverage to your position.
You Can Build an Income Portfolio with Stanley Black and Decker
Stanley Black and Decker is facing some headwinds over the next year but the long-term outlook is very bright. This company has proven it is capable of withstanding economic downturns, maintaining its strong balance sheet, paying Stanley Black and Decker stock dividends and growing its distribution and Stanley Black and Decker brands.