Company Description: Stanley Works is a worldwide producer of tools, hardware and specialty hardware for home improvement, consumer, industrial and professional use.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
SWK is trading at a discount to only 3.) above. Since SWK's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuation and average the remaining two, SWK is trading at a 16.1% premium. SWK had a Star deducted for trading at a premium in excess of 5%.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
SWK earned one Star in this section for 3.) above. SWK has paid a cash dividend to shareholders every year since 1877 and has increased its dividend payments for 41 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account [MMA]? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
SWK earned no Stars in this section, and had one Star deducted for a negative NPV MMA Diff. The negative NPV MMA Diff. means that on a NPV basis for every $1,000 invested in SWK you would earn $2,013 less than a MMA earning a 20-year average rate of 4.61%. If SWK grows its dividend at 3.3% per year, it will never equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.
Other: SWK is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. Though SWK has a strong brand name and is well positioned versus its competitors, SWK is is experiencing a cyclical downturn from a weak housing market and slowing U.S. economy. Overseas growth has been able to partially offset this downturn.
Conclusion: SWK lost a Star in the Fair Value section, earned a Star in the Dividend Analytical Data section and lost a Star in the Dividend Income vs. MMA section for a net total of -1 Stars. Since my scale bottoms out at zero, this quantitatively rates SWK as a 0 Star-Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $26.32 before SWK's NPV MMA Diff. increases to the $3,000 NPV MMA Diff. I like to see. At that price SWK would yield 4.79%. Given SWK's current valuation, I will not be purchasing shares anytime soon.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I do not own shares of SWK (0.0% of my Income Portfolio).