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Stanley, Black & Decker Inc. (SWK) Stock Analysis Pollie Style

Maybe you recognize this: As a homeowner there are always chores to do, in and around the house. Sometimes I’m wondering if this will ever stop 😉 It looks like the list with chores is never getting slimmer. Last week I was in my garage working with some power tools. And I was wondering which company produces these power tools. After a very quick search I found Stanley, Black & Decker Inc (SWK).

SWK is a company in the Industrial sector. This sector is only 2,5% of my Vrijheid Fonds. And SWK is one of the 8 dividend Zombies (Click here).

This analysis is on Stanley Black & Decker Inc. (SWK).


Company (from google finance): Stanley Black & Decker Inc. is a diversified global provider of power and hand tools, mechanical access solutions (automatic doors, commercial and residential locking systems), electronic security and monitoring systems and products and services for various industrial applications. The Company’s operations are classified into three business segments: Construction & Do-It-Yourself (CDIY), Security, and Industrial.

Can I explain this to a 10-year old? What Does This Company Do?
This company makes the knife with which you can cut the carpet, the power drill to make a hole in the wall and the automatic door in the mall.
Dividend Aristocrat: SWK is paying Dividend for more than 100 years in a row! And Richard Berger on Seeking Alpha called it a Dividend Zombie. It also raised their dividend for 47 years in a row. Its number 23 on the CCC-list from David Fish! They do not have any stars on Morningstar.com. It is a real dividend Aristocrat, so that’s a Pass!

Dividend Yield > 2.5%: The dividend Yield of SWK is 2.2%. This is above the industry average of 1.7%. But it is just below the 5 years average (2.3%). The Yield is below the requirements of the Pollie-Code, and therefore it failed the second Pollie-code.

Dividend payout <70%: The dividend payout is roughly 48%. This is below the maximum ratio. This also means that they can keep those dividend increases coming for a long time. Great! That’s what we DGI’s want. So also passed for this point.

DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 3.0, 7.5, 9.4 and 6.6. With a 3-years average over 7%. This is a little low, because I like DGR’s of more than 10%. But is above the requirements of the Pollie-code, so it is a pass.

P/E-ratio < 15: SWK has a current P/E ratio is 21.0. And is way lower then their 5 years average (32.5). I couldn’t find a industry average. This metric is above the requirement of the Pollie-Code. Therefore this is a fail.

EPS > 0: The EPS is 4.33. So SWK also passed the sixth Pollie-Code

ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 9.7%. This is another fail.

Market Cap. > 100M: No problem at this point. The Market cap. Is more than $ 15.051 Mil. You guested is already: Another pass.

Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 11.6. This is therefore (just) a fail on the Pollie-code.

Stock price 52wk high-25%: The 52 wk. high and low are: 97.72 and 75.00. This means that SWK will be in my buying zone when the stock price is below 92.04 ((97.72-75.00)*0,75 + 75.00). At this moment SWK is trading for $91.70. Therefore it is a pass on the Pollie-Code.

Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for SWK is 1.56.

Gordon Growth Model: A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. Given a dividend per share that is payable in one year, and the assumption that the dividend grows at a constant rate in perpetuity, the model solves for the present value of the infinite series of future dividends. On the Internet their 2 formulas can be found.

Stock Value (P) = D / (k-G) or Stock Value (P) = (D*(1+G))/ (k-G)

Where:
D = Expected dividend per share one year from now
k = Required rate of return for equity investor
G = Growth rate in dividends (in perpetuity)

When applied to SWK with D = $2.08, G = 5%, and k = 10% (corporate bond rate 2% + inflation rate 2% + equity risk premium 6% (very solid company), the intrinsic value will be around $45. At this moment SWK is trading above its intrinsic value.

Conclusion: When I look at the analysis, SWK passed 6 out of 10 from the Pollie-code! The Pollie-code failed at the P/E-ratio, Dividend Yield, the Chowder Rule and ROE. If we take a look at Gordon Growth Model we can see that the stock is trading in the overvalued zone.

SWK is a great stock! But at this moment it is priced too high. It can (and maybe will be) a nice addition to my portfolio. But not at this moment. I will put SWK on my watch list for my Vrijheid Fonds.

What are you – the readers, thoughts on Stanley Black & Decker Inc.? Is it a buy, do you own it?

Please comment on my analysis and thanks for stopping by!

Pollie.

DISCLAIMER: I’M NOT A REGISTERED INVESTMENT ADVISER, INVESTMENT PROFESSIONAL, BROKERAGE FIRM OR INVESTMENT COMPANY. READERS ARE ADVISED THAT INFORMATION ON THE WEBSITE IS ISSUED SOLELY FOR INFORMATION PURPOSES AND NOT TO BE CONSTRUED AS AN OFFER OR RECOMMENDATION TO BUY, HOLD, OR SELL ANY SECURITIES. ALL INFORMATION, OPINIONS, AND ANALYSES INCLUDED ARE BASED ON SOURCES BELIEVED TO BE RELIABLE, BUT NO REPRESENTATION OR WARRANTY IS MADE CONCERNING ACCURACY, CORRECTNESS, TIMELINESS, OR APPROPRIATENESS. PLEASE CONSULT WITH AN INVESTMENT PROFESSIONAL BEFORE INVESTING ANY OF YOUR MONEY.

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8 thoughts on “Stanley, Black & Decker Inc. (SWK) Stock Analysis Pollie Style

  1. Dividend for Starters

    Hi Pollie,

    Thanks for the nice analysis once again!

    I’m still at the start of building my DGI portfolio. That’s why I think there are much better options to invest in. Options which have a higher yield and a better growth rate at the same time.

    Last but not least, I agree on your conclusion. The price is too high at this moment.

    Best wishes,
    DfS

    1. polliesdividend Post author

      Hello DfS,
      Thanks for stopping buy.
      I agree qith you that at this moment there are beter optionS for a DGI than SWK.
      When the price will drop SWK will become a serious option.

      Cheers,
      Pollie

  2. DivGuy

    I must admit I’m surprised by the growth rate. Always searching for high dividend growth as an investor. However, it seems to be decelerating so that’s not very good news to me! I would consider this criteria as a fail.

    1. polliesdividend Post author

      A declining growth rate is bad! (Understatement)
      At this moment i’m looking at the Pollie-code for some improvements.
      A declining growth rate, a low div yield and the combination are something i’m looking at

      1. DivGuy

        No matter how good the code might be, there will always be times that we need to judge the stock by ourselves, combining results together. You’re doing a great job! 😉

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