Summary
- Stanley Black & Decker's has been growing, but its reduced gross margins have held back additional potential profitability.
- The company's DPD increases have been decelerating, with the latest DPS increases signaling further EPS growth worries.
- Snap-on also operates in the tools sector, with solid fundamentals. The stock's tangible returns are superior.
- We believe that Snap-on offers a better total return potential profile compared to Stanley Black & Decker.
As the S&P 500 is hovering near all-time highs, income-oriented investors may be looking to trim some of their overall market positions, and pivot towards higher-yielding stocks, offering tangible returns in the current market environment of high valuations.
Dividend Aristocrats, the stocks that have increased their distributions for at least 25 consecutive years, have always been on the list of investors looking for a reliable income, coupled with some growth. However, as we explained in our recent article on California Water Services (CWT), a 52-year Dividend King, being a Dividend King does not necessarily guarantee an adequate total return potential.
In this article, we want to take a look at another Dividend King, also boasting 52 years of consecutive dividend increases, Stanley Black & Decker (SWK). Since Stanley Works and Black & Decker merged in 2010, the current company has been a world leader in the tools and storage sector, with a market cap of around $25 billion. Despite the company's excellent dividend track record and market-leading position, we believe that the stock has limited future return potential, and investors would be better off buying Snap-on (SNA), for same-sector exposure.
In this article, we will:
- Go over Stanley Black & Decker's financials
- Assess the stock's medium-term return potential
- Recommend a better pick in the sector
- Conclude why investors would be better off buying Snap-on, for same-sector exposure
Stanley Black & Decker's financials
Over the past decade, the company has been consistently growing its revenues. Despite the 16.2% decline in sales in its Q2 results, last-twelve-month sales remain steady at around $13.62 billion. However, over this period, earnings have failed to follow suit, as the company has been facing reducing gross margins.
Despite SB&D's low payout ratio, currently, at around 43%, dividend growth has decelerated over the past few years. The company's latest DPS increase of only 1.4%, is a clear signal in terms of the company's overall profitability growth in the medium-term.
