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The Home Depot, Inc. (HD), Sears Holdings Corporation (SHLD): Should You Worry About Stanley Black & Decker, Inc. (SWK)’s Dividend?

For investors seeking income from their portfolios, a stock that qualifies as a Dividend Aristocrat automatically gets their attention. Stanley Black & Decker, Inc. (NYSE:SWK) is just one example, having easily eclipsed the 25-year minimum track record of annual dividend increases that Aristocrats have to post.

Yet even with its impressive 46-year dividend-hike streak, Stanley Black & Decker, Inc. (NYSE:SWK) recently did something with its payout that raised some investors’ eyebrows: it slowed the pace of its dividend growth. Although any increase is sufficient to keep a dividend streak technically alive, smaller payout boosts can sometimes signal challenges that investors need to pay attention to. Let’s take a closer look at Stanley Black & Decker to see whether it’s likely to be able to sustain or even improve on its dividend growth.

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

Dividend Stats on Stanley Black & Decker

Current Quarterly Dividend Per Share $0.50
Current Yield 2.3%
Number of Consecutive Years With Dividend Increases 46 years
Payout Ratio 37%
Last Increase September 2013

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

Why Stanley investors are still smiling

Even for dividend investors, total returns are still important, and Stanley Black & Decker, Inc. (NYSE:SWK) has rewarded shareholders as its stock has soared to new all-time highs. As the largest power-tool and hand-tool maker in the world, the company has used the strategy of aggressively acquiring tool brands to build out its offerings and boost market share. With a substantial amount of its demand coming from residential and commercial construction, the recent recovery in the U.S. housing market has raised investors’ expectations about Stanley’s future growth prospects. Analysts now see Stanley growing its earnings at a better than 15% pace both this year and next, helping fuel excitement about the stock.

Yet the big question going forward is whether the pace of those gains can continue. Rising interest rates haven’t caused Stanley Black & Decker, Inc. (NYSE:SWK)’s shares to buckle, but investors have seen signs of the possible impact of slower housing growth at some of the retailers that sell its products. The Home Depot, Inc. (NYSE:HD) in particular has seen its stock retreat as much as 10% from its recent highs as higher rates work their way through the residential mortgage market. So far, higher financing costs haven’t made big changes in home-buyers’ behavior, but the longer-term effects could reverse gains that the retailer has seen in past years. That in turn could threaten Stanley’s growth prospects.

Still, competition hasn’t been as big a threat as one might have expected. Sears Holdings Corporation (NASDAQ:SHLD), which is the company behind the popular Craftsman brand of tools, spun off its Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) unit late last year. The reshuffling included many local hardware stores that focused on tools and equipment, and some Sears investors hoped that the move would boost interest in both companies based largely in part on greater emphasis on the Craftsman brand. Yet despite strong initial success, Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) shares have retreated close to their initial price, and the status of Sears Holdings Corporation (NASDAQ:SHLD) more broadly remains in doubt despite its maintaining a resilient share price in 2013.

SWK Dividend Chart

Stanley Dividend data by YCharts.

With all this good news, the decision from Stanley back in July announcing a dividend increase of just a penny per share seems out of place. Boosts of around 20% in each of the past two years seemed sustainable in light of Stanley Black & Decker, Inc. (NYSE:SWK)’s earnings growth, and with a payout ratio well below 50%, it’s hard to argue that the company doesn’t have the ability make larger dividend distributions.

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