The “Dividend Aristocrats” club is popular among investors, and with good reason. This select group of S&P 500 Index ($SPX) companies have been raising dividends consecutively for 25 years or longer, which means the group comprises reliably wealth-generating names such as Walmart (WMT), Exxon Mobil (XOM), and PPG Industries (PPG).
Based on the criteria for entry, Dividend Aristocrats are stable, mature businesses typically characterized by a strong financial position and a well-established standing in their respective industries. As a source of passive income, investing in these companies can help add some relative stability and predictability to an investor's equity portfolio.
In 2024, the most recent entrant into this elite lineup is Fastenal (FAST) - which just landed a somewhat rare bullish recommendation from Bank of America, complete with a new Street-high price target. Here's a closer look.
About Fastenal Stock
Founded in 1967, Minnesota-based Fastenal is a leading distributor of industrial fasteners, tools, and other related products. The company operates a network of over 3,000 branches across North America and Europe, serving a diverse customer base in the manufacturing, construction, and maintenance industries. Fastenal currently commands a market cap of $40.1 billion.
FAST stock is up 9% on a YTD basis, and 25% over the past 52 weeks. Currently, the shares trade about 10% below their annual highs, set in March.
FAST pays a quarterly dividend of $0.39, which results in a healthy forward yield of 2.22% at current levels. With these dividends backed by 25 years of consistent growth and a 5-year growth rate of 12.3%, Fastenal is a solid new entrant to the ranks of Dividend Aristocrats.
Fastenal's Robust Fundamentals
Fastenal's dividend growth has been supported by a steady rise in its revenue and earnings. Over the last three years, revenue has expanded at a CAGR of 9.2%, while earnings per share (EPS) ramped up at a CAGR of more than 10%.
In the second quarter, the company's revenues rose by 1.8%, topping estimates at $1.92 billion, while EPS declined by about 2% to $0.51, arriving in line with Wall Street's expectations. Weighted FASTBin/FASTVend signings, a key metric that measures the success of its sales efforts and customer acquisition, rose by 5.8% from the prior year to 7,188 Mobile Equipment Units (MEUs).
Fastenal fortified its cash balance during Q2 by generating net cash flow from operations of $258 million, and closing the quarter with a cash balance of $255 million. Total debt on the balance sheet was 6.3% of total capital at the end of the quarter.
Investors should stay tuned for more financial updates from Fastenal this week, as the company is slated to report its Q3 earnings ahead of the open on Friday, Oct. 11.
Proactive Measures
Fastenal's business model revolves around building local relationships and distributing industrial and construction products. A key to its success is its customer-centric approach, exemplified by operating vending machines and Onsite locations at or near customer sites — about 120,000 vending machines and 2,000 locations. This strategy not only enhances customer convenience but also reduces the need for large stores, contributing to higher margins.
The company continues to grow, targeting 375-400 new Onsite customers in 2024, with a total of 1,934 customers by Q2. Fastenal's Onsite model helps create stickier revenues and stabilizes earnings. Additionally, its eBusiness revenues are thriving, positioning the company for earnings growth, especially with potential manufacturing recovery. Fastenal's e-commerce now surpasses 60% of total sales, and intends to reach 85% this year.
Bank of America is Bullish on FAST Stock
Overall, analysts have deemed FAST stock a “Hold,” and the stock has already surpassed its mean price target of $68.91. Out of 14 analysts covering the shares, 3 have a “Strong Buy” rating, 9 have a “Hold” rating, and 2 have a “Strong Sell” rating.
Bank of America appears to be the stock's biggest fan, initiating coverage of FAST on Monday with a “Buy” rating and a price target of $85 - the highest on the Street.
“We think Fastenal can produce above-peer earnings growth into 2025 and beyond,” wrote analyst Sabrina Abrams. The firm's new price target, based on a multiple of 25x EV/EBITDA for 2025, implies upside potential of 20.4% for FAST.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
