Income investors looking for a dividend growth stock trading at a discount should consider Stanley Black & Decker (SWK), suggests Bob Ciura, editor of Top 10 Dividend Elite.

First, the company has a long history of reliable dividend hikes. Stanley Black & Decker has increased its dividend for 55 consecutive years, qualifying it for the exclusive list of Dividend Kings. And, because the share price has declined over 50% year-to-date, shares now yield 4%. This represents a 10-year high dividend yield for Stanley Black & Decker.

At the same time, the steep decline in share price this year has created a notable discount for this quality company. Analysts currently expect SWK to generate 2023 earnings-per-share of $4.52, equaling a forward price-to-earnings ratio of 18x.

Of course, there is a reason for SWK’s declining stock price and valuation. The company has been hit hard by rising inflation and slowing global economic growth. This has taken a steep toll on the company’s profits, although revenue continues to grow at a strong rate.

On October 27th, Stanley Black & Decker announced third quarter results. Revenue grew 9% to $4.1 billion, topping estimates by $120 million. However, adjusted earnings-per-share of $0.76 compared very unfavorably to $2.77 in the prior year period.

Adjusted gross margin contracted 760 basis points to 24.7%, as higher prices were more than offset by higher commodity inflation and lower volume. Stanley Black & Decker’s key competitive advantage is that its products are well-known and respected by customers. This was why the company has been able to increase prices in certain product categories over the years and not see a decline in sales.

Fortunately, the company has a plan to combat inflation and improve profitability. Stanley Black & Decker has engaged a global cost-cutting program that delivered $65 million in pre-tax savings during the quarter. The company’s goal is to reduce expenses by $1 billion by the end of 2023 and by $2 billion within three years.

In the meantime, Stanley Black & Decker remains more than profitable enough to maintain its dividend, and continue to raise the dividend each year. The 2022 payout ratio of ~73% makes it likely that dividends will continue rising even through a serious economic downturn. Stanley Black & Decker is a Dividend King with a dividend yield at a 10-year high and an attractive valuation.

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