Did this dividend aristocrat live up to expectations in the first quarter?

We recently compiled a list of Dividend Aristocrats Ranked by Yield: Top 10In this article, we’ll look at where Stanley Black & Decker, Inc. (SWK) stands compared to the other Dividend Aristocrats.

Investors have always put income at the top of their list. And when it comes to making money, nothing beats dividend stocks. A study by S&P Dow Jones Indices showed that over the long term, dividend-paying companies have outperformed non-dividend companies and the broader market on a risk-adjusted basis. While investing in high dividend yields is not recommended by analysts, recent research indicates that dividend yield is a risk-rewarding factor, historically generating higher returns than a market-cap-weighted benchmark. When combined with other factors such as volatility, quality, momentum, size and value, dividend yield strategies have the potential to tap into systematic sources of return.

Dividend yield and growth have always been a hot topic for investors. But they didn’t realize that dividend yield is a key piece of the dividend growth puzzle. When it comes to the Dividend Aristocrats Index, a knack for raising dividends for 25 consecutive years doesn’t mean sacrificing yield. The index has consistently outperformed its benchmark by delivering higher yields, typically between 2% and 2.9% over the past 26 years ending in 2023. On average, the index yield was 2.5%, compared to 1.8% for the market. For more on high dividend stocks, check out Top Dividend Stocks Yielding at Least 7% According to Hedge Funds.

In addition to offering solid returns, Dividend Aristocrats are also less volatile than other asset classes. According to a report by S&P Dow Jones Indices, the Dividend Aristocrats Index has outperformed the broader market over the long term with less volatility, which is indicated by its higher risk-adjusted returns. The index’s ability to provide downside protection is evident in its upside and downside capture ratio. These stocks have outperformed the market in 69.34% of down months and 43.61% of up months. Additionally, the Dividend Aristocrats Index has experienced smaller declines than the benchmark index. The report further mentions that the index has generated an average excess return of 1.05% during down months compared to the broad benchmark index.

The 2023 data shows just how eager companies are to increase their dividends. This isn’t just a knee-jerk move to attract investors; it’s supported by strong corporate balance sheets, with companies raking in more cash flow than ever before. According to Janus Henderson, corporate cash flow remained strong in 2023 across most sectors, giving companies plenty of resources for dividends and share buybacks. As a result, global dividend growth increased 5% for the year, in line with the long-term trend. The firm also gave a positive outlook for dividends in 2024. It said dividends appear to be solidly supported this year, although one-off special dividends are expected to decline from the record levels seen over the past three years. The firm’s forecast calls for $1.72 trillion in dividends by 2024, an increase of 3.9% on a global basis, which translates to a growth rate of 5% on a global basis.

The story continues

There are many Dividend Aristocrats that offer solid returns to shareholders. In this article, we’ll look at some of the best Dividend Aristocrat stocks with high yields.

Our methodology:

For this list, we looked at a group of 67 Dividend Aristocrats, companies that have been known to raise their dividends for 25 years or more. From this list, we picked 10 stocks with the highest dividend yields as of June 25 and ranked them in order of yield from lowest to highest. We also measured hedge fund sentiment around each stock based on Insider Monkey’s database of 920 funds as of Q1 2024. Why are we interested in the stocks that hedge funds are piling into? The reason is simple: Our research has shown that we can outperform the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points.see more details here).

A toolbox filled with a range of different tools, representing the company’s professional products.

Stanley Black & Decker, Inc. (NYSE: SWK)

Dividend yield as of June 25: 3.90%

Stanley Black & Decker, Inc. (NYSE: SWK) is a Connecticut-based manufacturing company specializing in industrial tools and home hardware. In June, Barclays downgraded the stock to Equal Weight with an $86 price target as the firm noted that the company was experiencing weak demand from consumers and DIYers. The firm also mentioned that for the stock to perform well, rapid increases in earnings per share (EPS) will likely be needed, but Barclays believes that current market EPS estimates are overly optimistic.

We agree with Barclays’ observation on consumer weakness, as Stanley Black & Decker, Inc. (NYSE:SWK) described its Q1 2024 consumer demand as “moderate” and noted a decline in volumes in its Infrastructure segment. That said, the company leads the Tools & Outdoor segment, which saw its margin expand to 7.8% year-over-year, up 720 basis points from the prior year. The segment’s revenue for the quarter edged down 1% from the prior year period. Additionally, Stanley Black & Decker, Inc. (NYSE:SWK) beat analysts’ Q1 2024 estimates on several fronts. The company reported EPS of $0.56 and revenue of $3.87 billion, both beating the Street consensus by $0.01 and $35.7 million, respectively. The company expects demand trends to vary across its operations in 2024. To achieve this, it is focusing on reducing supply chain costs to improve margins, drive earnings growth and generate strong cash flow. In addition, the company is investing in growth initiatives to drive innovation and develop unique market strategies, with the aim of capitalizing on promising long-term opportunities.

On April 26, Stanley Black & Decker, Inc. (NYSE: SWK) declared a quarterly dividend of $0.81 per share, matching its previous dividend. In 2023, the company achieved its 57th consecutive annual dividend increase. Additionally, it has paid shareholders uninterrupted dividends for the past 147 years, making SWK one of the best Dividend Aristocrat stocks on our list. The stock offers a dividend yield of 3.90%, as of June 25.

Stanley Black & Decker, Inc. (NYSE: SWK) was in 31 hedge funds’ portfolios at the end of the first quarter of 2024, the same number as in the previous quarter, according to Insider Monkey’s database. The holdings held by these hedge funds are collectively worth over $715 million.

Overall SWK ranks 8th on our list of the best Dividend Aristocrats ranked by yield. You can visit Dividend Aristocrats Ranked by Yield: Top 10 to see other dividend stocks that are on hedge funds’ radar. While we recognize SWK’s potential as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks have more promise to deliver higher yields, and in a shorter time frame. If you’re looking for a deeply undervalued dividend stock that has more promise than SWK but is trading at less than 7x earnings and yielding close to 10%, check out our report on the very cheap dividend stocks.

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Disclosure: None. This article was originally published on Insider Monkey.