Stanley Black & Decker’s Dividend Remains Secure Despite Supply Chain, Inflation Challenges
Stanley Black & Decker has paid uninterrupted dividends for 146 consecutive years, a streak we expect will continue despite a handful of macro headwinds that have sent shares of the world's largest tool maker slumping over 40% in 2022. Stanley's core portfolio of branded power and hand tools depends on about 100 manufacturing plants and 45 distribution centers around the globe, with approximately 40% of sales made outside of the U.S. With many Asia-based production plants located far from big-box retailers and other customers, Stanley's sprawling footprint has exposed the company to numerous supply challenges and surging transportation costs.
As High Inflation Persists, Clorox’s Dividend Continues to Look Safe
Since our last note on Clorox in February, inflation has accelerated and run hotter than expected. Rising costs have further squeezed earnings and driven the firm's trailing payout ratio to over 100%. Despite the operating environment turning even more challenging than anticipated, we believe Clorox's long-term outlook remains intact, and the company's dividend remains safe. However, we do expect inflationary challenges to persist for a while longer. From resin used in plastic containers to non-woven fabrics for wipes products, prices of the cleaning product maker's essential materials have risen by 25% to 50% over the last two years, on top of the overwhelming increased costs to ship goods.
Cracker Barrel Battles Surging Food, Wage Costs to Defend Dividend
Cracker Barrel's operating margin sits at roughly half its pre-Covid level, reflecting double-digit commodity and wage inflation along with dine-in traffic that has yet to recover fully from the pandemic's effects. As earnings pressures mount, Cracker Barrel's payout ratio may creep further towards 100%, a level not seen since the onset of the pandemic in 2020. We expect Cracker Barrel to remain committed to its dividend during this difficult period, but the path back to "normal" profitability and dividend coverage will take time.
STORE Capital’s Optimistic Outlook Remains Intact Despite Slowing Economy
Shares of STORE Capital have trailed the broader market this year, having dropped almost 25%. Rising interest rates and growing anxiety around consumers' financial health seem to be the biggest concerns.While STORE has built a portfolio of nearly 3,000 properties filled primarily with e-commerce-resistant businesses like restaurants and gyms to combat the long-term headwinds of online shopping, the REIT's tenants are not immune to the inflationary pressures placed on consumers.Even so, STORE's broad tenant and geographical diversification help spread this inflationary risk over 100 different industries and almost 600 clients, none accounting for more than 3% of total rent.