Monday, June 23, 2008

Illinois Tool Works (ITW) Dividend Analysis

Illinois Tool Works, Inc. manufactures a range of industrial products and equipment
ITW is a dividend champion as well as a component of the S&P 500 index. The company has been increasing its dividends for the past 44 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 8.00 % to its shareholders.



At the same time company has managed to deliver a 10.80% average annual increase in its EPS since 1998.















The ROE fell from its 1998 highs of over 20% to its 2001 lows at 10%, before recovering all the was back to 20% by late 2000’s.















Annual dividend payments have increased over the past 10 years by an average of 15.70% annually, which is much higher than the growth in EPS. A 16% growth in dividends translates into the dividend payment doubling almost every four and a half years. If we look at historical data, going as far back as 1987, ITW has actually managed to double its dividend payment every five years on average.














If we invested $100,000 in ITW on December 31, 1997 we would have bought 3389 shares (Adjusted for A 2:1 stock split in May 2006). In March 1998 your quarterly dividend income would have been $203. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1078 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 367 %. If you reinvested it though, your quarterly dividend income would have increased by 430%.















The dividend payout has remained at or below 38% over our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
















I think that ITW is attractively valued with its low price/earnings multiple of 15 low DPR and competitive yield at 2.20%.

Disclosure: I own shares of ITW
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3 comments:

  1. Good Analysis.
    Could you post analysis on T & VZ?

    ReplyDelete
  2. Narsi,

    Thanks for the nice words and for stopping by. Unfortunately, since I already work in telecommunications, I am not allowed to analyze these.

    Hope you understand!

    ReplyDelete
  3. Personally I have been moving all my dividend stocks into mutual funds as I find the extra expense to repurchase the individual stocks cuts too deep into the dividend.

    How are you managing the cash you receive and rolling that back into the stock? Do you do it on every dividend or do you save it up for the year?

    ReplyDelete

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