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Fastenal Company
FAST-Q
PARTIAL BUY
Oct 20, 2025
Stock price when the opinion was issued
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If you want a case study for the anatomy of exceptional dividend growth, this would be the company. Back in 2005 they had a low payout ratio and were growing top and bottom lines, and then they increased the payout ratio. Their dividend in 2005 went to $0.16 a share, and then went to $1 per share in 2014, a 23% dividend growth per share in 10 years. The dividend is secure although it is growing at a slower rate.
Premium contentPremium contentPremium contentPremium contentThe sold it over the summer. They report next week, A quality business but economically sensitive to the industrial capex cycle. Not a bad company. He sold it to buy more 3M. A reason to sell is that we may not see the soft landing to the economy. It trades at 32x forward PE vs.17x PE in 3M, which runs a more diversified business.
Despite Fastenal's slightly weaker-than-expected 3Q results, market share gains should continue to drive above-market growth, even though signs of a short-cycle industrial recovery remain elusive. The 3Q earnings miss was primarily due to higher operating costs, reflecting a reset of the bonus program, and softer-than-anticipated pricing. Fastenal delayed product pricing by about 30 days to strengthen customer relations, which resulted in a 240-270-bp top-line contribution in 3Q, below management's 300-500-bp expectation. The company’s share gains and gross margin were positives in 3Q, though higher costs and less favorable pricing are likely to pressure near-term profitability. Guidance implies 4Q gross margin will decline about 70 bps sequentially to 44.6%, 40 bps below estimates. The sector has some economic sensitivity, but FAST is up 363% in the past ten years and one of the better names. It is not cheap at 38X earnings which would be our main objection. We would be OK with a starter buy position.
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