The Dividend Aristocrats are a select group of 66 stocks in the S&P 500 Index that have each raised their dividends for at least 25 consecutive years. In this five-part series, Ben Reynolds — editor of Sure Dividend — highlights his five favorites.

We believe buying and holding the Dividend Aristocrats for the long run, is a proven way to generate strong returns.

Read Dividend Aristocrats Part 1 here…
Read Dividend Aristocrats Part 2 here…
Read Dividend Aristocrats Part 3 here…
Read Dividend Aristocrats Part 4 here…

But buying the Dividend Aristocrats when they are undervalued, could produce even better returns. Here, we will explain why Stanley Black & Decker (SWK) is our top-ranked Dividend Aristocrat right now.

Business Overview & Recent Events

Stanley Black & Decker is a global leader in power tools and hand tools, with the top position in tools and storage sales. It is also a top brand in commercial electronic security and engineered fastening.

Stanley Black & Decker’s key competitive advantage is that its products are well-known and respected by customers. This is why the company has been able to increase prices in certain product categories over the years and not see a decline in sales.

Stanley Black & Decker has also been very active in making strategic acquisitions to help grow the company. For example, the 2017 acquisition of the Craftsman Brand helped drive organic growth in North America every quarter (with the exception of the first two quarters of 2020) since the purchase.

Stanley Black & Decker has increased its dividend for over 50 years. It is a member of the Dividend Aristocrats list, as well as the Dividend Kings list. Its impressive dividend history is due to its consistent growth. 2021 was no exception—in the fourth quarter, revenue grew 1.5% to $4.1 billion. For the year, revenue grew 20% to $15.6 billion with adjusted earnings-per-share increased 24% to $11.20 per share.

Organic growth reached 17% for the full year. Sales of Tools & Storage products, the largest segment within the company, saw full year organic growth of 20%. The company expects 2022 to be another strong year. Stanley Black & Decker expects organic revenue to increase 7% to 8% for the full year. Adjusted earnings-per-share are expected in a range of $12.00 to $12.50 for the year.

Growth, Valuation & Expected Returns

Stanley Black & Decker has grown its earnings-per-share by just over 10% per year in the last five and 10-year periods. We expect the company to continue to grow earnings-per-share at a rate of 8% annually going forward, which will provide shareholders with a solid base of returns.

In addition, the stock has a 2.2% dividend yield. Finally, we see the stock as significantly undervalued right now, due to the 22% year-to-date decline in share price. As a result, Stanley Black & Decker shares trade for a 2022 price-to-earnings ratio of 12.

Our fair value estimate for SWK stock is a price-to-earnings ratio of 16.5, which is equal to the 10-year average valuation. If the P/E ratio expands from 12 to 16.5 over the next five years, it would boost shareholder returns by approximately 6.6% per year. Overall, SWK stock is expected to generate total returns of 16.8% per year.

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