Snap-on; an undervalued dividend paying share with good upside potential

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Snap-on; an undervalued dividend paying share with good upside potential

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Published Date: 2018-04-26 | Source: Share Picks USA | Author: Bruce Ingram

Snap-on; an undervalued dividend paying share with good upside potential

Snap-on was founded in 1920 and is a $3.7 billion revenue company with a $8.7B Market Cap. It has been paying dividends since 1939. The dividends have increased for the last 9 years.

About Snap-on:

Vehicle aging in the USA is one of the growth drivers for Snap-on.

Management see the following Runways for Growth: Investing in Strategically Decisive Areas

  • Enhance the franchise network
  • Expand with repair shop owners & managers
  • Extend to critical industries
  • Build in emerging markets

The share price has declined recently leaving the company significantly undervalued. The normal P/E ratio over the last 7 years is about 19. The current P/E ratio is 13.9. The current share price is $146.84. If the share reverts to its normal P/E ratio by the end of 2019 and with forecast growth and dividend income the total Rate of Return will be 32.5% per annum

Recent threats on increased Steel and Aluminium tariffs (which are core costs for SNA) have driven share prices lower. However, management are not concerned as they are able to find was of reducing costs and they feel the market will sustain price increases to compensate.

Snap-on is a premium product and management can rely on their unique brand strength to sustain growth.

The S & P credit rating is A- Debt is low at 22% Debt/ Capital.

The dividend yield is 2.2% and has grown by 16% per year for the last 5 years. The current dividend yield is 41% above its 5-year average yield of 1.59%. This is another indicator that the share could be undervalued.

Snap-on has only paid out 28.5% of its earnings as a dividend for the last 5 years. This means that the future dividend is safe and leaves the company a healthy cushion of retained profits. SNA has generated positive free cash flow every year for the last 10 years.

Investor Information available here: SNA Investor Overview March 2018 FINAL PDF

a pciture of a snap-on Van

Their history makes interesting reading: Our History

The current dividend yield of 2.2% is not ideal for the income portfolio However with the potential to grow at a total Rate of Return of 32% per year to the end of 2019 I believe Snap-on is worth considering as a buy for a growth portfolio.

a picture of a snap-on show vehicle



Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research.


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