Stanley Black & Decker

The expert for tools & security systems

Especially as a long-term dividend investor, I love companies that can show an excellent dividend history. If a company manages to pay its shareholders a dividend every single year over a period of 25 years and also raise it annually, that speaks for a proven and usually crisis-resistant business model. My regular readers know, of course, that there are also companies with a much longer payout history - besides the Dividend Kings (payment & increase for >50 years), there are also companies that have been making dividend investors happy for well over 100 years. For example, Bank of Montreal has been paying since 1828, ExxonMobil since 1882, Procter & Gamble since 1890 and Church & Dwight since 1901 - just to name a few.

Today I'd like to introduce Stanley Black & Decker Inc., the global number 1 in tools and one of the leading providers of security systems. Apart from that, it has been paying a dividend since 1877 - reason enough for us to take a closer look at the company.

The history and business model of Stanley Black & Decker Inc.

The origins of today's tool maker go back to August 12, 1802, when Frederick Trent Stanley was born in New Britain (Connecticut). After a short time at school, he first started working on a steamboat and a little later tried his luck as a door-to-door salesman. Frederick invested his money early on in the budding hardware industry and in 1831 decided to open his own business in his hometown. Unfortunately he had to give up his company during the economic crisis of 1837, but in 1842 he made a new attempt. Together with his younger brother William he bought an abandoned building and the following year opened Stanley's Bolt Manufactory. For his production he needed large machines, which at that time were mostly powered by workers, running water or horse treadmills. Since he found all of that too inefficient, he became the first business in the region to use a single-cylinder high-pressure steam engine. This powerful drive did give him a decisive market advantage, and Stanley was able to gradually grow his hardware business with bolts, doorknobs and handles, but you couldn't call it rapid growth. Only when the railroad network made a national market possible in the late 19th century did demand for Stanley's products soar, and the business was able to develop superbly.

In September 1910 the two designers and engineers S. Duncan Black and Alonzo G. Decker joined forces and founded the Black & Decker Manufacturing Company. To raise starting capital, Duncan sold his $600 car and they took out a loan of $1,200. With this money they rented a small warehouse in Baltimore (Maryland) and bought various production machines for their workshop. At first the two kept their heads above water with various customer orders, building, for example, a milk bottle capping machine and a cotton picker. Only in 1916 did the two tinkerers start developing their first electrically powered tool. There were already some German power tools, but since they were hard to operate and very unwieldy, they had no commercial success. Black and Decker developed a universal motor that could run on both alternating and direct current and adopted the same trigger switch mechanism as a revolver. This first electric drill was much lighter and, at $230, comparatively cheaper than competing products.

Their drill, patented in 1917, became a bestseller, and just a year later the company crossed the one million dollar revenue mark. Further portable power tools followed, such as a grinder or a screwdriver. To keep up with rising demand, it regularly had to expand its production capacity. In addition, the company was able to grow considerably over the years through numerous acquisitions. Frederick's industrial company, which by then was called The Stanley Works, also developed excellently. To benefit from synergies, the two industrial giants agreed to merge at the end of 2009 (after seemingly endless talks over a period of 28 years). Since then Stanley Black & Decker Inc. has been the world's largest tool maker, as well as the global market leader in engineered fastening and one of the leading manufacturers of security systems.

What does the future hold for Stanley Black & Decker Inc.?

First I'd like to take a quick look at the numbers from the most recently published quarter (Q4 2020). In the last quarter of fiscal year 2020, Stanley Black & Decker Inc. generated revenue of $4.4 billion, an impressive increase of 19 percent compared to the prior-year quarter. Looking at the entire 2020 fiscal year, revenue came to $14.5 billion, which was only one percent higher than FY 2019. Fortunately, the strong organic growth in the second half of the year (+10 percent) offset the pandemic-related market impacts. Adjusted earnings per share came to $9.04, which in turn meant growth of 8 percent compared to FY 2019. All in all, you can be very satisfied with this development.

The company, which naturally enjoys favorite status among home builders and DIYers, benefits from the ongoing trend toward more and more do-it-yourself projects. Corona in particular gave this trend another enormous boost - many people are at home, discover a need for renovation here and there, or are looking for a change from monotonous office life and are getting handy again. Home improvement chains like Lowe's Companies, Home Depot or Tractor Supply also benefit from this trend.

So it's no wonder that Stanley Black & Decker earns around 70 percent ($10.1 billion in 2019) of its revenue with tools and storage. According to the company, it sells about 50 tools per second! This includes the brands Stanley Tools, Black + Decker, Dewalt and Craftsman. In the last fiscal year it achieved growth of 25 percent here. The industrial segment also grew by about 10 percent last year and accounts for around 16 percent of total revenue. In this segment Stanley Black & Decker supplies large industrial companies with smart and powerful machines. Only the security systems segment declined by 3 percent in 2020. Could that also be because more people are working from home and can therefore save themselves the purchase of an alarm system?

Going forward, Stanley Black & Decker Inc. still has decent growth opportunities on the global market. It generates around 61 percent in its home country America, 19 percent in Europe, 11 percent in emerging markets and the remaining 9 percent in the rest of the world. Overall, you could say that the tool pro probably isn't an extraordinary growth stock in the long run, but it is a very solid stock for dividend portfolios.

Speaking of which, what about the dividend?

The tool maker paid out its first share of profits in the form of dividends to its shareholders as early as 1877. Since then the dividend has been paid every year and, in addition, raised annually since 1968. So for some years now the company has been one of the coveted Dividend Kings. However, you shouldn't expect huge dividend growth rates from Stanley Black & Decker - over the last 10 years the annual increase has been about 5.9 percent. The current dividend yield of 1.5 percent is also definitely solid. I really like the payout ratio of just 36.2 percent - there's enough money left in the company to keep growing in the future.

Conclusion:
Stanley Black & Decker Inc. grew from a small hardware manufactory into the world's largest tool producer. Through numerous acquisitions and its own development, it now has many well-known and valued brands in its portfolio. In my opinion, long-term investors should take a closer look at the company.