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by John Oravec
Don’t catch a falling knife.
That age-old adage means you shouldn’t try to buy a stock when it’s tumbling down, because trying to perfectly time the bottom is incredibly difficult.
Such was the case with industrial and aerospace manufacturer Barnes Group (NYSE: B) after its most recent earnings report.
The company missed earnings expectations on October 27, which sent its stock tumbling over 30% in one day. It fell from the previous day’s close of $29.98 to a low of $19.96.
Oftentimes, when a stock takes a tumble, it keeps falling. But with Barnes, we soon saw a reason to be bullish again.
Over the next week, Barnes Group CEO Thomas Hook bought $2.6 million worth of stock, increasing his stake in the company by 166%.
And six other insiders have bought a total of nearly $1.4 million worth of shares since late October.
Insider buying is a major sign that executives still believe in their company. And Wall Street noticed the activity.
In fact, despite the single-day 30% drop in October, the stock has risen back to its previous levels in under two months’ time. It’s now sitting at over $30.
Investors and insiders clearly believe that the market overreacted to the October 27 earnings results.
But how do they feel about the dividend?
The company currently pays a quarterly dividend of $0.16, which equates to a yield of around 2.14%.
That may not seem like much compared with other dividends we’ve reviewed in the past…
But Barnes has a lot going for it.
Its free cash flow is expected to have grown over 70% since 2022, from $40.5 million to $68.9 million…
It hasn’t cut its dividend within the past 10 years…
And its payout ratios look good.
The only thing that knocks it down a peg is that its three-year free cash flow is estimated to be down over 60% from 2020 to 2023.
There’s a reasonable explanation for that, though.
Barnes Group is still trying to recover from the business and sales disruptions that were caused by the COVID-19 pandemic.
And thanks to cost-cutting measures the company introduced in 2022, it has regained some of its lost revenue this year and its prospects are looking up.
But don’t take it from me…
Take it from the insiders who know the company like the back of their hand and have snatched up millions of dollars’ worth of shares for themselves.
They’ll be rewarded with a modest but safe dividend.
Dividend Safety Rating: B
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