Snap-On Tools (NSA) is the premier toolmaker. The company pays a decent dividend and has grown its dividend.
However, Snap-On Tools is not the most consistent dividend grower.
Snap-On experiences periods where it doesn’t raise its dividend. These periods can last several years.
Short Snap-On Tools
J Capital Research through their Podcast discussed their short call on Snap-On and why it is a dividend stock to avoid.
I recommend listening to the whole podcast because it does a really good job of breaking down all of Snap-On’s business. I listed a few of the highlights below.
- Excessive use of credit to make sales.
- Expect bad debts to rise from 3% to 6% of their loan book.
- Excessive credit use has pulled forward sales.
- Revenues and earnings in the Tools division will decline as finance division pulls back and credit use declines.
- Snap-On took full control of their finance division in 2011.
- Back then finance receivables were 54% of sales.
- Now receivables make up 86% of sales.
- Last year’s credit growth remained at 15% but sales growth fell to 5% from the 7% rate of the last few years.
Risk to Dividend Growth Investors
Snap-On Tools’ dividend is not at risk.
The risk to a dividend growth investor is Snap-On Tools going through another long period without raising its dividend as it works through its bad loans.