If you like power tools and dividends, Stanley Works (NYSE:SWK) may be the stock for you.
First, the tools: Stanley makes its own signature line of hand tools, Bostitch pneumatic nailers, Mac tools, and garage doors, among many others. Now, the dividends: Last week, Stanley announced its 37th annual dividend increase. It is not easy to find companies that have increased dividends 10 years in a row, let alone 37. After the increase, Stanley is now yielding 2.5%. While this is not a monster yield, investors who bought the stock just one year ago are getting almost a 4% dividend based on the price of the stock back then. A commitment to dividend increases shows a commitment to shareholders.
After the close Monday, Stanley reported earnings of $0.73 per share, handily beating the $0.67 estimate. The bottom line grew by 46% year over year. Revenues for the quarter were $795 million. The top line grew 13% year over year. Profit margins and operating margins both rose this quarter. Looking to the future, Stanley is expected to grow earnings faster than its industry for the next five years. Not too shabby.
This great report should not be a surprise to investors, though. Competitor Black & Decker (NYSE:BDK) reported its own blowout last week. Stanley itself has a long track record of beating earnings estimates, so this quarter was no different. The company is firing on all cylinders right now. This is a cyclical company, and we are at the point in the economic cycle where this stock should be doing well. On the flip side, the stock has a history of going down in periods of economic recession. Great execution is likely to be trumped by a stock market that falls.
So are there other risks we need to understand? As you can imagine, making tools takes all sorts of industrial metals such as iron and steel. Metals prices have been going up. Stanley said that commodity inflation will cost an extra $70 million to $80 million for 2004, with only two-thirds of that cost being passed on to customers. That may be good for anyone needing to buy a nail gun, but it may be an obstacle for shareholders.
One of the best things about Stanley Works is its dividend. Want to learn about other companies with similar, or even better, dividend yields? Take a free, no-obligation trial to Motley Fool Income Investor .
Fool contributor Roger Nusbaum is an investment manager and wildland firefighter in Prescott, Ariz. At press time neither he nor his clients owned any of the stocks mentioned.
