Will Fastenal Keep Its Dividend Aristocrat Title?

When a company enters the rarified realm of the dividend aristocrats, the pressure is on to guard its dividend. One lousy quarter can strike you off the list, which includes companies in the S&P 500 that have raised their dividend for at least 25 years. Fastenal FAST became a dividend aristocrat in 2024. 

Trending: Mark Cuban believes “the next wave of revenue generation is around real estate and entertainment” — this new real estate fund allows you to get started with just $100.

If you are looking for stock appreciation, this one has delivered up over 111% in the past five years as of this writing. It has a current forward dividend yield of 2.43% and pays an annual dividend of $1.56. That's not the type of yield that sends us running to sign up, but consistency is essential. For the last three quarters, Fastenal has held its dividend at $0.39 and recently announced it will do that for the next quarter. The company tends to raise its dividend once a year, the minimum required to help it remain a dividend aristocrat. As one of the newest members of this exclusive club, does it have the chops to stick around? 

You may not have heard of Fastenal, but you likely have been in a building that uses its products or used products that it helped create. Fastenal is a crucial piece of the supply chain when it comes to the construction and maintenance of buildings. It consolidates industrial supply, solving logistical problems and other issues. Fastenal often installs large machines inside buildings and manufacturing facilities that allow all sorts of workers to get the supplies they need, from safety gear to screws and nails. The company was founded in 1967 and had its IPO twenty years later. 

Signs of Weakness

Fastenal's sales of $1.9 billion were up 1.8%, but operating income dropped by 2%. This is a global company, and foreign exchange rates had a negative impact on the company’s results. The primary factor weighing on Fastenal's performance is the pace of U.S. manufacturing. The U.S. Manufacturing Purchasing Managers’ Index has signaled weak activity for 19 of the last 20 months. This is a substantial headwind because 73% of Fastenal's business is industrial. 

Fastenal's growth comes from signing new customers and existing customer sales. Active sites were up nearly 12% year-over-year. So far, this hasn't significantly impacted sales, but more facilities means more usage over the long haul. One indicator to watch regarding this company is manufacturing layoffs and factory closures. Another input is nonresidential construction, which has been depressed recently due to interest rate increases and weakened demand for new office space. 

Whole Foods' landlord has delivered a 15% net IRR for its investors since 2015. Check out the latest investment opportunities added to its platform.

Future Outlook And The Economy

Because Fastenal is so tied to production, manufacturing, and infrastructure, some of the company's results are simply out of its control. One thing to watch with Fastenal is its increasing commitment to technology and selling more of its products via e-commerce. 

While you might not think of Fastenal as a company that would be a big consumer of AI, the company has rolled out its ‘Fastenal Intelligence’ system, which is an AI-driven source of supply chain information. The company's next move is to deploy an AI sourcing tool to provide estimates and share substitutions for product needs. While this does seem like a valuable service for customers, it's unlikely that it will increase sales meaningfully over the short term.

Analyst consensus on Fastenal is that it is a hold. This move makes sense, considering that current results are not necessarily a result of company moves but more of a macroeconomic challenge. Speaking to analysts, CEO Daniel Florness said, "Some of the stuff the Fed is looking at doing is positive. I don't know if that changes things in the next three to six months. But the fact that they're talking about it is positive."

It sounds like Florness is in wait-and-see mode like the rest of us. Fastenal is building the playing field to increase its business; the manufacturing winds need to turn in its favor. Barring major economic kerfuffles, Fastenal's dividend aristocrat achievement may be safe for now. 

Check Out One Of Benzinga's Top Picks for Private Market Opportunities Available Now:

Integris Secured Credit Fund IV

The fund provides a fixed annual return of 12%, payable quarterly, over a 2-year period starting April 2024 and ending April 2026. The note is secured by collateral with an estimated value of $71M, with an anticipated loan-to-value ratio of 14%.

• Minimum investment: $100,000
• Available to: Accredited investors
• View fund information

View more private market offerings on Benzinga's Alternative Investment screener.

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.