Snap-On Tools, A Dividend Stock to Avoid?

Snap-On Tools (NSA) is the premier toolmaker. The company pays a decent dividend and has grown its dividend.

SNA Dividend Chart

SNA Dividend data by YCharts

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.

SNA Dividend Chart

SNA Dividend data by YCharts

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.