Following 2022's disappointing results from the S&P 500 (and even worse results from the tech-heavy Nasdaq Composite), many investors may be looking to avoid buying volatile, high-risk growth stocks this year. For those investors, it may make sense to consider adding more dividend income to their portfolio. Even more, it might be wise for investors burned out by the market's volatility to look for a highly profitable and established company to invest in. Fastenal (FAST 1.71%), which specializes in wholesale distribution of industrial and construction supplies, is a great option for these investors to consider.
Fastenal, the market-leading supplier of industrial and construction supplies, is a cash cow, enabling it to pay investors a nice quarterly dividend -- a cash payment that can offset some of the pain of stock market volatility. In addition, the company has a long history of steady, profitable growth.
Let's take a closer look at this investment idea.
NASDAQ: FAST
Key Data Points
Strong growth
Fastenal's resilient and impressive business model is evident in both the company's long-term results and its most recent quarter. Starting with its financial results from its third quarter of 2022, Fastenal reported revenue growth of 16% year over year. Its earnings per share rose 17.4% year over year. Key catalysts during the quarter were "good underlying demand in markets tied to industrial capital goods and commodities," management said in the company's third-quarter earnings release. Highlighting the company's pricing power and the strength of Fastenal's business model, management said 550 to 580 basis points of the company's net sales during the period was driven by price increases rolled out to mitigate the impact of cost inflation.
Results are impressive over the past five years, too. During this period, Fastenal managed to increase its annual sales about 55%. Even more notable, earnings per share rose a total of 87% during this same timeframe. The company's positioning as North America's largest fastener distributor and its long history of providing outstanding service to its customers pays off in consistent and robust growth.
An attractive dividend
The company's profitable business growth over the last five years means shareholders have been rewarded. Not only has the stock risen 73% over this period but the company has been increasing its dividend for decades, with its first dividend being paid to investors in 1991. In addition, it has paid out a special dividend on top of its regular dividend in 2008, 2010, 2012, and 2020. Capturing how much the company prioritizes returning cash to shareholders through dividends, Fastenal's quarterly dividend has increased a total of 94% over the past five years.
Looking ahead, Fastenal's dividend should continue to grow thanks to the company's underlying business momentum and a payout ratio that has some wiggle room for increased payments. Today, Fastenal is paying out about 65% of its earnings in dividends, leaving plenty of room for continued growth.
Making the stock attractive today, Fastenal currently boasts a meaningful dividend yield of about 2.6%. With the company's dividend likely to increase in the coming years, its total cash payments will probably grow, too. Furthermore, since the company has historically paid a special dividend from time to time, it's always possible that Fastenal sweetens the pot with an extra cash payment in the coming years.
The company's strong business momentum, robust dividend yield, and dividend growth prospects combine to make Fastenal a great investment idea for investors looking for a compelling dividend stock.
