The Dividend Kings are a group of 46 stocks that have each raised their dividends for at least 50 consecutive years, explains Bob Ciura, editor of Sure Dividend; here, he continues a review of his favorite investments among the Kings.

At Sure Dividend, we recommend investors in retirement take a closer look at high-quality dividend stocks. In order to narrow it down, we specifically favor stocks with long histories of increasing dividends every year, such as the Dividend Kings.

Read The Top Dividend Kings, Part 1 — Tennant Company here…
Read The Top Dividend Kings, Part 2 — Leggett & Platt here…
Read The Top Dividend Kings, Part 3 — Lowe's Companies here…

Stanley Black & Decker (SWK) is a Dividend King that has increased its dividend for over 50 years in a row. SWK has struggled this year due to rising inflation and the global economic slowdown. But the company has a long history of surviving recessions. In the meantime, shares yield over 4% and could generate strong total returns over the next five years.

Business Overview & Recent Events

Stanley Black & Decker is a world leader in power tools, hand tools, and related items. The company holds the top global position in tools and storage sales. Stanley Black & Decker is second in the world in the areas of commercial electronic security and engineered fastening. Stanley Works and Black & Decker merged in 2010 to form the current company, though the company can trace its history back to 1843.

On October 27th, the company reported better-than-expected quarterly results. Revenue of $4.1 billion rose 9% year-over-year, and beat estimates by $120 million. Adjusted earnings-per-share of $0.76 beat estimates by $0.06. Acquisitions added 16 percentage points to sales growth for the quarter, while price hikes added another 8 points.

Growth was partially offset by a 10% decline in volumes, and a 4% decline from unfavorable currency fluctuations. For the full year 2022, adjusted EPS is expected in a range of $4.15 to $4.65.

Going forward, the company is aggressively reducing costs to support its earnings growth. Initiatives include resizing the organization, reducing inventory and headcount reductions. These initiatives are expected to generate cost savings of approximately $150 to $200 million in 2022, $1 billion by the end of 2023 and $2 billion by 2025.

Stanley Black & Decker has seen earnings-per-share grow at a rate of more than 10% over both the last five- and 10-year periods of time. Stanley Black & Decker remained profitable over the Great Recession but saw earnings decline 15% in 2008 and 20% in 2009. In the years since, Stanley Black & Decker has generally seen its earnings-per-share rise over time. We expect SWK to grow its annual earnings-per-share by 8% per year over the next five years.

Valuation & Expected Returns

Stanley Black & Decker has increased its dividend for 55 consecutive years. At the midpoint of 2022 EPS guidance, the company has a projected dividend payout ratio of 73% for the full year. This is a relatively high payout ratio, but the company’s actions to improve its profitability and return to earnings growth should lower the payout ratio in 2023 and beyond.

The combination of valuation changes, expected EPS growth and the 4.1% dividend yield leads to expected returns of 15.2% per year over the next five years.

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