SNAP! An unsexy business I never thought about…

One of the nice things about visiting blogs and investing sites like SeekingAlpha/Motley Fool/Morningstar, is being exposed to things you wouldn’t think about.  There are a lot of industries out there and it actually takes time to figure out what the boring ones are.  Not because we don’t realize what sounds boring, but because we (at least I) don’t regularly think about boring industries and these positions are not something that pop into our heads when we think about dividend producing stocks.  What company do you think about when I say dividends?  ATT? MCD? KO? or maybe PG?

So I was reading some posts on SeekingAlpha and came across the article, Dividend Challengers (And Near-Challengers): 57 Increases Expected By New Year’s Day.

Snap-On (SNA)

Heard of this company before?  You may have seen their trucks leaving an auto repair shop like Firestone or Midas.  The truck is one of their mobile selling units and brings the tools to the location where they are needed.  This approach was pioneered by SNA.  SNA has been viewed for a long time as the vehicle repair tools company.  However, SNA, provides tools for aviation, aerospace, military, mining, power and others.  Additionally, they operate in 130 countries around the world, including; US, UK, Brazil, Russia and China.   They operate in 4 business segments:

  • Commercial and Industrial Group
  • Snap-on Tools Group
  • Repair Systems and Information Group
  • Financial Services

What about the dividend?

SNA has paid (and never lowered) a dividend since 1939.  They have raised it since 2009 and should be raising it again shortly for the 4th quarter payout.  Here is how dividends have looked since 2009:

Year Dividend ($) Raise (%)
2009 1.20
2010 1.22 1.6
2011 1.30 8.3
2012 1.40 7.7
2013 1.58 12.9
2014 1.32

With a current yield of 1.33%.

Not bad!  This is a Compound Annual Growth Rate (CAGR) of 7.12%.  While I like to see a longer dividend growth streak, if a company meets my other criteria then I am willing to lower the number of consecutive years.  SNA has a much longer history of paying dividends, but never lowering them, which I believe would qualify them for my portfolio.

Does SNA have what I’m looking for?*

When initially looking into a stock, I look at a few metrics to help me determine whether future research is warranted or should I just throw the stock away?

Payout Ratio < 60 %?  Yes, 26.7 for the TTM.  In fact it has remained below 40 since 2010.

Cashflow Payout Ratio < 60%? Yes, At the end of 2013, Cash Flow Per share was 5.45 and dividends paid was 1.58, which is about 29%.

Stagnant/Falling share count? Yes. Shares have remained between 58-59 million for the last decade.  They have repurchased shares each year for the last four years.

Growing Revenue? Yes. Revenue has grown from 2.4 billion (2004) to 3.057 billion (2013), with TTM revenue of 3.2 billion.  Revenue reached a low point in 2009 with 2.36 billion (~ 40 million less than 2004).

Debt Manageable?  Yes.  InterestCoverage Ratio is 12.  Total debt is approximately 1 billion and they have issued very little debt over the last 4 years (< 20 million per year).  In fact, they have payed back more than they issued in 3 of the last 4 years.

 Future Review Warranted

I like what I see.  They have payed dividends for a very long time (57 years), but have not raised it when the company couldn’t afford to do it.  This is a big plus in my book, the dividend has never been cut and is one of there selling points in there company report.  Their main market is very large (fixing cars) and is not going around anytime soon.

The main concern I have is that the starting dividend yeild is low 1.33% (< 2.5% I like).  This wouldn’t necessarily be an issue if they had higher consistent raises (like an SBUX for example), but that is not the case.  However, I will keep look into this company some more and may be a good candidate to add to on a pull back.

*Data provided by Morninstar

Have you found an interesting boring dividend growth company?

Disclaimer: T, MCD, KO, PG

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