Should You Buy ASSA ABLOY?
Can Locks Buy My Freedom?
👋 Howdy Partner,
Five thousand dollars.
That’s my number.
Not a fortune. But enough to change a life. Enough to buy freedom.
My goal at Compounding Dividends is simple: generate $5,000 a month in passive income. Every month. Rain or shine.
That’s $60,000 a year. A middle-class salary. Without working a single day.
Last year, the portfolio brought in just over $9,000. Not bad. But still a long way to go.
Here’s the thing most people miss… These dividends grow. They grow every year. Like clockwork. The average annual growth? 11%.
At that pace, they double roughly every 6.5 years. Not because I’m a genius. But because the math works.
Let’s say I had a $1 million portfolio. With our current 3.64% yield, that’d give me $36,400 in annual income. No guesswork needed.
And if I let that income grow at the same rate - 11% - I’d hit my target in about five years.
That’s not hope. That’s a plan.
It’s not sexy. There’s no meme stock, no crypto lottery ticket. Just boring, beautiful compounding.
Can ASSA ABLOY Help Me Reach My Goal?
Let’s find out with a Not-So-Deep Dive.
ASSA ABLOY AB is the global leader in door locks, access control systems, and entrance automation.
After weaker organic growth in early 2024 and broader European economic slowdown fears, the stock is down about 10% from its highs:
Why has Assa Abloy struggled recently?
Slower construction activity in Europe
Higher interest rates have hurt new building starts
Short-term integration costs from recent acquisitions
Some cautious customer ordering patterns
Essentially, growth temporarily slowed while the company continued to invest for the long term.
1. Do I understand the business model?
Assa Abloy manufactures and sells door opening solutions.
They operate in 5 segments:
Opening Solutions (EMEA, Americas, Asia-Pacific): Locks, doors, access control
Global Technologies: Digital access and identity solutions (like keycards, biometric access)
Entrance Systems: Automated doors, industrial entrances
In simple terms:
They make mechanical locks, digital locks, automated doors, and security systems.
They sell products to:
Builders (new construction)
Renovation and retrofit (upgrading existing doors and security)
End-users like offices, hotels, hospitals, airports, and industrial facilities.
70% of sales are from aftermarket/retrofit (recurring), not new construction.
2. Is management capable?
You want to invest in companies led by great managers.
Nico Delvaux has been CEO since 2018.
Previously CEO of Metso Group and held senior roles at Atlas Copco
Strong industrial and global experience
Approval ratings and Glassdoor reviews are solid (~80% approve)
Holds 516,984 shares for a value of ~154.5 million SEK or 16 million USD
Assa Abloy's Return on Capital Employed (ROCE) consistently runs around 12%-17%, a strong sign of good capital allocation.
I’m using ROCE here because it takes into account debt, which ASSA ABLOY uses to grow by acquiring new companies.
3. Has the company grown the dividend attractively?
We look for:
At least 10 years of dividend growth
5-year dividend growth >5%
Assa Abloy easily meets both:
30+ years of consecutive dividend payments
5-year dividend growth rate: 8.9% annually
10-year dividend growth rate: 10.5% annually
4. Is the company active in an attractive end market?
Ideal markets have:
Necessary products
Recurring demand
Long-term secular growth
🔒 Locks and access solutions are necessary.
Security is a basic human need.
Demand increases with urbanization, construction, and rising wealth.
Retrofits (upgrading from mechanical to digital locks) are a long-term trend.
🏢 Entrance automation is growing, driven by:
More commercial automation
Health and safety regulations (hands-free entrances)
Energy efficiency standards
The smart lock and digital access markets are growing double digits globally.
5. What are the main risks for the company?
All companies face risks.
For Assa Abloy, key risks include:
Construction Cycles: Lower construction slows some segments
Competitive Pressure: Allegion, Dormakaba, and smaller regional players
Technological Disruption: New smart lock technologies
Geopolitical Risks: International footprint exposes them to currency and regulatory risks
How are these risks addressed?
70% of sales are aftermarket/retrofit = more stable than new construction.
Continuous R&D investment (over 2% of sales) to stay ahead in smart technologies.
Geographical and segment diversification: No single country is more than 25% of sales.