Should Fastenal Company (NASDAQ:FAST) Be Part Of Your Dividend Portfolio?

Fastenal Company (NASDAQ:FAST) has pleased shareholders over the past 10 years, by paying out dividends. The company is currently worth US$17b, and now yields roughly 2.8%. Does Fastenal tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

See our latest analysis for Fastenal

5 checks you should use to assess a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is it paying an annual yield above 75% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has it increased its dividend per share amount over the past?

• Does earnings amply cover its dividend payments?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

NasdaqGS:FAST Historical Dividend Yield December 5th 18

How does Fastenal fare?

Fastenal has a trailing twelve-month payout ratio of 57%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect FAST’s payout to remain around the same level at 58% of its earnings, which leads to a dividend yield of around 3.0%. Moreover, EPS should increase to $2.75.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. In the case of FAST it has increased its DPS from $0.27 to $1.6 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes FAST a true dividend rockstar.

Compared to its peers, Fastenal generates a yield of 2.8%, which is high for Trade Distributors stocks but still below the market’s top dividend payers.

Next Steps:

Keeping in mind the dividend characteristics above, Fastenal is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three essential aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for FAST’s future growth? Take a look at our free research report of analyst consensus for FAST’s outlook.

2. Valuation: What is FAST worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether FAST is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.