Stanley Black & Decker, Inc. (NYSE:SWK) Is About To Go Ex-Dividend, And It Pays A 3.5% Yield
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Stanley Black & Decker, Inc. (NYSE:SWK) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Stanley Black & Decker investors that purchase the stock on or after the 8th of September will not receive the dividend, which will be paid on the 22nd of September.
The company's next dividend payment will be US$0.84 per share, on the back of last year when the company paid a total of US$3.36 to shareholders. Based on the last year's worth of payments, Stanley Black & Decker stock has a trailing yield of around 3.5% on the current share price of US$96.50. If you buy this business for its dividend, you should have an idea of whether Stanley Black & Decker's dividend is reliable and sustainable. So we need to investigate whether Stanley Black & Decker can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 81% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 39% of its free cash flow in the past year.
It's positive to see that Stanley Black & Decker's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for Stanley Black & Decker
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Stanley Black & Decker's earnings per share have fallen at approximately 11% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Stanley Black & Decker has increased its dividend at approximately 4.3% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Stanley Black & Decker is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
The Bottom Line
From a dividend perspective, should investors buy or avoid Stanley Black & Decker? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Stanley Black & Decker's dividend merits.
So if you want to do more digging on Stanley Black & Decker, you'll find it worthwhile knowing the risks that this stock faces. In terms of investment risks, we've identified 1 warning sign with Stanley Black & Decker and understanding them should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.