Updated on May 21st, 2024 by Bob Ciura
The Dividend Aristocrats consist of S&P 500 companies that have raised their dividends for at least 25 years in a row. Each year, the list changes as new companies are added (and occasionally are removed when streaks end).
Fastenal Co. (FAST) was the one addition to the Dividend Aristocrats list in 2024.
You can see the full list of all 68 Dividend Aristocrats here.
We created a full list of all Dividend Aristocrats, along with important financial metrics like price-to-earnings ratios and dividend yields. You can download your copy of the Dividend Aristocrats list by clicking on the link below:
Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.
Fastenal increased its dividend last year for the 25th consecutive year. On January 17th, 2024, Fastenal raised its quarterly dividend by 11%, from $0.35 to $0.39.
This article will discuss the most recent addition to the Dividend Aristocrats list in greater detail.
Business Overview
Fastenal began in 1967 when Bob Kierlin and four friends pooled together $30,000 to open the first store. The original intent was to dispense nuts and bolts via vending machine, but that idea got off the ground after 20 years.
The company went public in 1987 and today provides fasteners, tools and supplies to its customers via 1,592 public branches, 1,872 active Onsite locations and over 115,000 managed inventory devices.
Fastenal has a market capitalization of $38 billion.
In mid-April, Fastenal reported (4/11/24) financial results for the first quarter of fiscal 2024. It grew its net sales 2% over the prior year’s quarter thanks to growth in Onsite locations, mostly those that opened in the last two years.
Source: Investor Presentation
Sales were lackluster, as they were hurt by adverse weather but this is a non-recurring issue. Earnings-per-share remained flat at $0.52, missing the analysts’ consensus by $0.01. It was the first earnings miss after 17 quarters in a row.
Fastenal posted record earnings-per-share in 2022 and 2023 and is likely to post another record this year, given its positive momentum and its guidance for 375-400 new Onsite locations in 2024, more than the 326 new Onsite locations achieved in 2023.
Growth Prospects
Fastenal has grown its earnings-per-share at a 10.2% average annual rate over the last decade and at a 9.0% average annual rate over the last five years. This has been driven by a variety of factors, including sales more than doubling, an improvement in margins and tax reform.
The COVID-19 pandemic impacted many businesses, but Fastenal proved resilient in 2020. The traditional business faced challenges, but the Safety segment more than offset lost sales. We expect 7% growth of earnings-per-share over the next five years.
Fastenal is in the midst of a transformation from the traditional public branches leading the business to Onsite locations and managed inventory (mostly vending devices) heading the growth story.
We believe this is a prudent move, establishing stickier relationships with customers. This is especially true since only a small fraction of the company’s business is from walk-in customers while the majority is done business-to-business.
Competitive Advantages & Recession Performance
Fastenal has a first mover competitive advantage in its industrial vending and Onsite locations, creating a very sticky and well-attuned customer relationship with high switching costs.
Moreover, its scale allows the company to continue its growth path, adjust to business preferences and reliably deliver needed goods.
You can see Fastenal’s earnings-per-share during the Great Recession below:
- 2007 earnings-per-share: $0.39
- 2008 earnings-per-share: $0.48
- 2009 earnings-per-share: $0.31
- 2010 earnings-per-share: $0.45
Earnings declined during the worst of the recession, but the company remained profitable. This kept the dividend rising during that period.
While we note some cyclical possibilities in the construction industry, thus far the company has proven itself to be well prepared to endure financial storms.
We note that the dividend payout ratio is elevated at 73% for 2024, but we believe this is reasonable considering the debt-free balance sheet.
Valuation & Expected Returns
Based on expected adjusted EPS of $2.15 for fiscal 2024, Fastenal stock is currently trading at 30.7 times its expected EPS. The earnings multiple is above our estimate of fair value at 24 times earnings.
This implies a 4.8% annual headwind should it reach 19 times earnings over the next five years. The decline will be offset by the expected earnings growth, which we estimate at 7% per year.
Fastenal stock also has a current dividend yield of 2.3% per year. Therefore, we project total annual returns of 4.5% over the next five years.
Final Thoughts
Fastenal has proven a great company, with consistent growth of earnings and dividends. Moreover, it is executing moves to better cement itself as a go-to supplier.
However, the stock has more than doubled in the past five years, and has become overvalued. We expect the stock to generate a 4.5% average annual total return over the next five years. The stock maintains its hold rating.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: