3/8/25
Fastenal is a well-established name in the industrial distribution space, supplying fasteners, safety equipment, and various industrial products to manufacturers, contractors, and government agencies. The company operates a vast network of stores and vending machines, allowing customers to quickly access the products they need.
For those who focus on dividends, Fastenal is an intriguing option. It has a long track record of paying reliable dividends, and management has consistently rewarded shareholders with steady increases. However, the stock isn’t cheap, which raises the question—does its dividend growth potential justify the current valuation? Let’s break it down.
Key Dividend Metrics
💰 Dividend Yield: 2.15%
📈 5-Year Average Dividend Yield: 2.21%
💵 Annual Dividend Per Share: $1.72
🔄 Dividend Growth Streak: Over 25 years
🛡 Payout Ratio: 78%
📆 Last Dividend Payment: February 28, 2025
🚀 5-Year Dividend Growth Rate: Around 11%
Dividend Overview
Fastenal has built a reputation as a consistent dividend payer, offering a forward yield of 2.15%. While not the highest among industrial stocks, it makes up for that with dependable dividend growth. The company’s 5-year average yield of 2.21% suggests that investors are comfortable paying a premium for this stability.
A payout ratio of 78% indicates that a significant portion of earnings is returned to shareholders. While this is on the higher end, it remains manageable given Fastenal’s ability to generate strong cash flow.
One of the more attractive aspects of Fastenal’s dividend policy is its commitment to quarterly increases. Few companies raise their dividend every quarter, making this a strong point for income investors.
Dividend Growth and Safety
Dividend growth has been impressive, with an annualized increase of about 11% over the past five years. This growth rate is well above inflation, allowing shareholders to maintain and even improve their purchasing power over time.
However, with the payout ratio creeping toward 80%, dividend growth could slow in the future if earnings don’t accelerate. The company has historically been able to cover dividends with cash flow, but investors should keep an eye on profit margins and revenue trends to ensure this continues.
That said, Fastenal’s financial strength provides a cushion. The company has a relatively low debt-to-equity ratio of 13.4%, meaning it isn’t overleveraged. With a current ratio of 4.68, liquidity is more than sufficient to handle short-term obligations.
Chart Analysis
The price action for Fastenal (FAST) is showing some interesting technical signals, especially with its moving averages, volume trends, and momentum indicators. The stock has been in a clear uptrend but recently faced some fluctuations. Let’s break it down.
Moving Averages and Trend Strength
The 50-day moving average is trending above the 200-day moving average, which is typically a sign of bullish momentum. This crossover occurred a few months ago and has held firm, suggesting that buyers have remained in control for an extended period.
However, the stock recently dipped below the 50-day moving average before rebounding sharply. This type of movement often indicates that the stock is testing support and finding renewed buying interest at lower levels. The 200-day moving average remains in an upward trajectory, reinforcing the longer-term strength of the trend.
Price Action and Recent Candles
The most recent candlestick is a strong green candle with a close near the high of the day. This signals aggressive buying, especially since the stock opened near its low and pushed higher throughout the session. A close near the day’s high often means momentum could carry forward into the next trading session.
Looking at the past five candles, there has been a mix of consolidation and a breakout move. The previous session showed hesitation, but today’s strong move suggests that buyers are stepping in. Wicks on prior candles indicate some selling pressure, but today’s action shows buyers were able to overpower it.
Volume Trends and Market Participation
The spike in volume on today’s candle is a key signal. Higher-than-average volume on an up day confirms that institutional money is stepping in, adding credibility to the move. The previous volume bars show periods of low activity followed by a surge, which often precedes a continuation of the trend.
That being said, if volume fades in the coming days, it could mean this was just a short-term push rather than the start of a bigger rally. Keeping an eye on whether volume sustains at elevated levels will be important for gauging the strength of this breakout.
Relative Strength Index (RSI) and Momentum
The RSI has been trending higher, indicating strengthening momentum. It is approaching the overbought zone, but it hasn’t yet reached extreme levels. This suggests there is still room for the stock to run before a potential pullback.
Earlier in the chart, the RSI had dipped into oversold territory, which aligned with the stock finding support. The gradual climb back up shows improving sentiment and increasing demand. If RSI moves above 80, it may indicate the stock is overextended and due for consolidation.
This chart presents a compelling technical picture, with bullish momentum building but some signs to watch for potential reversals or slowdowns. The interplay between moving averages, volume, and RSI will be key in determining the next move for Fastenal.
Analyst Ratings
📈 Upgrades
In early March 2025, Bank of America Securities analyst Sabrina Abrams upgraded Fastenal with a Buy rating and set a price target of $85. 🔼 She pointed to Fastenal’s strong foothold in the industrial distribution space, particularly in fasteners and safety supplies. Abrams noted that the company is making strategic moves to expand its market share, which could lead to above-average revenue growth. She also highlighted operational efficiencies and cost controls, which could help sustain profit margins even in a slowing economy.
📉 Downgrades
On the other hand, in December 2024, Stifel analyst Brian Butler downgraded Fastenal from Strong Buy to Hold and lowered the price target from $86 to $82. 🔽 His primary concern was valuation—Fastenal’s price-to-earnings ratio of 37.20 appeared stretched, making it more expensive than many of its industrial sector peers. Butler also noted that while Fastenal remains a market leader, its stock price may already reflect much of its future growth potential, limiting near-term upside.
🎯 Consensus Price Target
Analysts currently hold a neutral stance on Fastenal, with a consensus rating of Hold and an average price target of $78.25. 📊 This suggests that while the company is financially sound, concerns about its high valuation may cap its near-term stock price appreciation.
These differing viewpoints highlight Fastenal’s strong fundamentals but also the importance of valuation awareness when considering new positions in the stock.
Earnings Report Summary
Fastenal’s latest earnings report gave investors plenty to think about. While the company managed to grow sales, profits faced some headwinds, reflecting a mix of economic challenges and rising costs.
Fourth-Quarter Performance
In the last quarter of 2024, Fastenal pulled in about $1.82 billion in revenue, up 3.7% from the same period the year before. However, when adjusting for the extra selling day, the actual sales growth was closer to 2.1%. Net income came in at $262.1 million, translating to earnings per share of $0.46, which was slightly below what analysts had expected.
One of the key pressure points was the company’s gross profit margin, which slipped a bit to 45.9%. The reason? A shift in the mix of products and customers, along with changes in rebate structures. At the same time, operating income dropped, making up 18.9% of net sales compared to 20.1% the year before. A big factor behind this was an increase in operating expenses—up 7.8%—driven by higher wages and costs related to maintaining and upgrading its facilities.
Full-Year 2024 Performance
For the full year, Fastenal generated $7.55 billion in revenue, growing 4.0% from the prior year. Net income was $1.15 billion, with earnings per share of $2.00—just a notch lower than the previous year’s $2.01. While sales continued to grow, profitability took a slight hit as the company spent more on operations and inventory.
Speaking of inventory, Fastenal’s stockpiles grew by 9.2% to $1.64 billion, a move meant to support service levels and future growth. On the balance sheet, total assets reached $5.28 billion, while total liabilities came in at $1.61 billion. Shareholders’ equity stood at $3.67 billion, keeping the company on solid financial ground.
Cash Flow and Shareholder Returns
Fastenal generated $1.17 billion in operating cash flow during the year, though this was down about 18% from the prior year. The drop was mainly due to higher investments in inventory. Despite that, the company stayed committed to rewarding shareholders, returning $1.02 billion through dividends and share buybacks.
Market Conditions and What’s Next
It’s no secret that manufacturing slowed in 2024, which affected Fastenal’s business. Some of its largest customers cut back production, especially at the end of the year, while unfavorable currency exchange rates added another layer of difficulty.
Still, the company remains focused on expanding key areas like its Onsite locations, vending machine placements, and digital solutions. With a strong balance sheet and a steady approach to long-term growth, Fastenal is positioning itself to weather short-term challenges and keep moving forward.
Financial Health and Stability
Fastenal operates with strong profitability and efficient operations. Its key financial metrics reinforce its position as a well-run company:
- Profit margin: 15.25%
- Operating margin: 18.90%
- Return on assets: 20.60%
- Return on equity: 33.04%
These figures suggest that the company is highly effective at generating returns for shareholders. Strong cash flow also supports the dividend, with operating cash flow sitting at $1.17 billion and free cash flow at $747.79 million.
However, there is one area to watch—earnings growth. The most recent quarterly earnings declined by 1.6% year-over-year, while revenue growth came in at 3.7%. This slowdown isn’t necessarily alarming, but if the trend continues, it could impact dividend growth in the long run.
Valuation and Stock Performance
One of the biggest considerations for investors looking at Fastenal right now is valuation. The stock trades at a trailing price-to-earnings ratio of 39.99 and a forward P/E of 36.90. Compared to many industrial stocks, this is expensive.
Other valuation metrics also suggest a premium price:
- Price-to-book ratio: 12.68
- PEG ratio: 3.57
These numbers indicate that the stock isn’t cheap, and investors are paying a premium for its reliability.
Fastenal has had a solid run over the past year, currently trading near its 52-week high of $84.88. The 50-day moving average is $74.30, and the 200-day moving average is $72.05, showing a clear upward trend.
For long-term investors, the key question is whether the stock’s growth can justify this valuation. While Fastenal has delivered in the past, a higher entry price may limit future upside.
Risks and Considerations
Even a strong dividend stock like Fastenal comes with risks. A few things investors should consider include:
- Valuation concerns – The stock’s premium price leaves little room for error. A market downturn or earnings miss could lead to a correction.
- Economic cycles – As an industrial supplier, Fastenal’s business is tied to manufacturing and construction activity. If these industries slow down, revenue could take a hit.
- Dividend payout ratio – At 78%, dividends remain safe for now, but without stronger earnings growth, future increases could be more modest.
- Competitive pressures – While Fastenal has a strong market position, it faces growing competition from other industrial distributors and e-commerce platforms.
Keeping an eye on these factors will help investors make a well-informed decision about Fastenal’s long-term dividend potential.
Final Thoughts
Fastenal is a well-managed company with a strong history of rewarding shareholders. It offers consistent dividend payments, solid financials, and a track record of steady growth. However, the current valuation appears stretched, making it a less attractive entry point for new investors at today’s prices.
For those already holding shares, Fastenal remains a reliable income stock with dependable cash flow and a shareholder-friendly approach. Investors looking to start a position may want to wait for a better opportunity, especially if the stock pulls back to a more reasonable valuation.
Regardless of short-term price fluctuations, Fastenal’s long-term dividend history and financial stability suggest it will continue rewarding patient investors for years to come.
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