Fastenal Company Proves That Slow & Steady Can Win in the Long Term

Fastenal Company Proves That Slow & Steady Can WinFastenal Company: Steady Dividend Grower With Strong Capital Gains

While the lure of technology stocks tends to dominate the financial headlines, sometimes it makes sense to sit back with some conservative dividend-paying stocks like Fastenal Company (NASDAQ:FAST).

To say Fastenal stock is boring is an understatement. The global company makes high-volume low-margin fasteners, tools, and supplies.

Consider, however, that FAST stock is up by a stellar 36% this year, easily outperforming the S&P 500 and Nasdaq by a wide margin.

If you bought Fastenal shares at $10.00 in 2010, you would be up around 250% and well above the S&P 500. And that doesn’t even include the consistent growth in dividends.

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Chart courtesy of StockCharts.com

Why Steady Growth Behind FAST Stock Means Long-Term Happiness 

Fastenal Company is not supercharged with the tremendous growth seen with some technology companies, but that doesn’t mean Fastenal stock should be ignored.

A look at the company’s revenue history over the past five years may make growth investors yawn, but Fastenal has steadily grown its revenues, achieving a record 2018. It’s this steadiness that has resulted in strong capital gains and dividends.

Fiscal Year Revenues (Billions) Growth
2014 $3.7
2015 $3.9 3.6%
2016 $4.0 2.4%
2017 $4.4 10.8%
2018 $5.0 13.1%

(Source: “Fastenal Co.MarketWatch, last accessed November 29, 2019.)

Fastenal is estimated to increase its revenue growth by 7.9% to $5.4 billion this year, followed by growth of 5.4% to $5.7 billion in 2020. (Source: “Fastenal Company (FAST),”Yahoo! Finance, last accessed December 3, 2019.)

The company is also a consistent deliverer of positive earnings before interest, taxes, depreciation, and amortization (EBITDA)—with over $1.0 billion in both 2017 and 2018.

Fiscal Year EBITDA (Millions) Growth
2014 $859.3
2015 $913.9 6.4%
2016 $899.4 -1.6%
2017 $1,010 12.1%
2018 $1,140 12.8%

(Source: MarketWatch, op. cit.)

Fastenal Company is profitable based on a generally accepted accounting principles (GAAP) basis, with earnings-per-share (EPS) increases in four of the past five years and a record 2018.

Fiscal Year Diluted GAAP EPS Growth
2014 $0.83
2015 $0.89 6.6%
2016 $0.87 -2.3%
2017 $1.01 16.2%
2018 $1.31 30.3%

(Source: MarketWatch, op. cit.)

The positive EPS trend is expected to continue, with Fastenal slated to earn $1.39 per diluted share in 2019 and $1.46 in 2020. (Source: Yahoo! Finance, op. cit.)

The company also generates a healthy stream of free cash flow (FCF), with growth in four of the last five years—including just under half a billion dollars in 2018.

Fiscal Year Free Cash Flow (Millions) Growth
2014 $309.9
2015 $391.8 26.4%
2016 $324.6 -17.2%
2017 $465.3 43.4%
2018 $497.9 7.0%

(Source: MarketWatch, op. cit.)

The strong FCF will allow Fastenal to continue to spend on capital expenditures and dividends.

Analyst Take

Income investors who want capital appreciation upside might want to consider Fastenal stock.

The business is boring, but unless machinery suddenly doesn’t require nuts and bolts, Fastenal Company could make a great addition to a long-term portfolio.