This stock is on fire: Four straight years of positive stock returns, consecutive annual dividend growth since 1968, a tripling of sales and profits in 10 years, a great balance sheet and steady free cash flows. Stanley Black & Decker is among the market's most reliable money-generating machines.
But Stanley Black & Decker is a long-term investment proposition.
The company, which was founded in 1843 as a tools manufacturer, is the world's largest tools and storage firm, the world's second largest commercial electronic security company and a reliable provider of engineered fastening systems. It enjoys enormous room for growth because of its unique operating leverage, functional transformation and security improvement scope.
Black & Decker has a 14.2% operating margins, a post-merger record. With strong free cash flow, it offers a growing dividend yield and is free of any corporate governance blemishes. At a five-year expected price-to-earnings growth (PEG) ratio of 1.71 and a forward price-to-earnings (P/E) of 15.57, the stock is a value pick compared to peers like Simpson Manufacturing, Snap-On, Toro, Lincoln Electric and SKF.
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After a reasonably staid 2016, due partly to the strong dollar, Black & Decker is projected to deliver an earnings per share (EPS) growth of only 3.37%. However, analysts expect it to deliver a much stronger upswing of nearly 11% in 2017.
In a volatile market, the dividend strength of Black & Decker alone makes it a safe stock to own. It has a comfortable dividend payout ratio in the mid-thirties and a 2+% yield.
Management's indication that it will soon dive into mergers and acquisitions (M&A) is not concerning. The company's almost $4 billion debt is manageable. The company already has completed almost 100 acquisitions over the past 15 years, a time when it beat the S&P 500's total shareholder return by five times.
Black & Decker has an impressive record of launching new and innovative products. As an income opportunity, it has tremendous appeal. At the same time, there aren't any major risks to its business.
The stock should keep rising and top analysts' one-year estimates (highest at present is $120). Along the way, the company should offer stable dividends.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.