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Tickers in this Article: SNA
When you hear of an investment opportunity you're interested in, you might be drawn to something that can be described in a sexy way like "explosive" or "revolutionary."

#-ad_banner-#What you learn after a while, though, is that the most attractive adjective in investing is "consistency."

Stocks like Johnson & Johnson (NYSE: JNJ) don't often make headlines, but they churn out steady results year after year. Since the beginning of 2012, JNJ is up 43%; with dividends reinvested, it's up just over 50%.

Call JNJ a boring stock if you want. I'll take those types of returns all day long.

But how about the best of both worlds -- a consistent dividend-paying growth stock with plenty of upside?

This stock has risen 110% since the beginning of 2012, and the company -- which has being paying dividends since 1985 -- recently increased its dividend by 15.8%. This month, the company beat fourth-quarter earnings estimates, bringing total 2013 earnings per share (EPS) to $5.93, up 14% from the previous year.

The stock I'm talking about is Snap-on Inc. (NYSE: SNA), the eponymous maker of Snap-on tools and accessories for consumers ranging from do-it-yourselfers to oil workers in Alaska's North Slope. Snap-on has a global presence and a reputation for superior-quality products, which allow it to sell its products at a premium over generic tools and lower-quality brands.

Snap-on reported sales of $3.1 billion for 2013, up 4% year-over-year with organic growth of 3.5% in its fourth-quarter earnings report. Gross margin increased to 47.5%, mainly due to cost-cutting and improved efficiency.

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Over half of Snap-on's sales come from its tools group, which saw year-over-year growth of 10.2%.
Over half of Snap-on's sales come from its tools group, which saw year-over-year growth of 10.2%. Margins increased to 14.5% as well. Management attributes the growth to a strong franchise network that continually makes the top 25 networks by Franchise Business Review, an agency that rates franchisees' satisfaction.

SNA trades at a relatively cheap 15 times future earnings and pays a dividend yield of 1.6%. The dividend was just increased, but the payout ratio remains low at just 27%, giving the company plenty of room to continue increasing its dividend.

Snap-on reduced its long-term debt from $970 million in 2012 to $861 million while increasing cash reserves to $182.5 million. The company has access to $700 million in available credit and commercial paper, and Moody's recently upgraded Snap-on's credit rating and issued a stable outlook.

Snap-on's competitor Stanley Black & Decker (NYSE: SWK) is benefiting as well. The company has raised dividends every year since 1968 and currently pays a yield of 2.5%, although its payout ratio of 64% is higher than Snap-on's.

One of the biggest drags on SWK is its relatively high debt load at over $10 billion, giving it a debt-to-equity ratio of 0.6 and a credit rating barely within investment grade. Another risk to Black & Decker includes foreign currency risk stemming from the fact that 50% of its revenue is generated overseas.



Risks to Consider: More than 40% of Snap-on's revenue comes from its tools group, which is a franchised part of the business. Any breakdown in the relationship with franchisees could weigh on earnings. In addition, more than a third of Snap-on's revenues are generated overseas, which could subject the company to foreign exchange risks.

Action to Take --> The stock is currently trading near $109 with next year's earnings estimated to be around $7.21 per share. Based on the stocks multiple, it should trade at about $131, which amounts to upside of 20%.

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