Friday, May 27, 2011

United Technologies (UTX) Dividend Stock Analysis

United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. The company operates in six segments: Pratt & Whitney, Otis, Carrier, Sikorsky, UTC Fire & Security and Hamilton Sundstrand. United Technologies is a component of the Dow Jones Industrials and the dividend achievers indexes. United Technologies has paid uninterrupted dividends on its common stock since 1936 and increased payments to common shareholders every year for 17 years.


The most recent dividend increase was in April, when the Board of Directors approved a 12.90% increase to 48 cents/share. The major competitors of United Technologies include Honeywell (HON), General Electric (GE) and Boeing (BA).

Over the past decade this dividend growth stock has delivered an annualized total return of 10.70% to its loyal shareholders.

The company has managed to deliver an increase in EPS of 10.60% per year since 2001. Analysts expect United Technologies to earn $5.36 per share in 2011 and $6.08 per share in 2012. This would be a nice increase from the $4.74/share the company earned in 2010.

The backlog in commercial airplanes at Boeing and Airbus until 2013 is one positive fact for United Technologies. Another plus will be orders to Otis for the new World Trade Center. The introduction of the Boeing 787 would also be positive for revenue growth. United Technologies generates 60% of its revenues from outside the US. Growth in emerging markets such as China would certainly add to the bottom line.

Over the past decade, the return on equity has consistently remained above 20%. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 15.90% per year since 2001, which is higher than the growth in EPS.

A 16% growth in distributions translates into the dividend payment doubling every four and a half years. If we look at historical data, going as far back as 1977, we see that United Technologies has actually managed to double its dividend every eight and a half years on average. The company tends to raise dividends every five quarters, rather than every four quarters.

Over the past decade the dividend payout ratio has steadily increased, as dividends increased at much higher rate than earnings. While this indicator is at 36%, there is still more room for high dividend growth. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently United Technologies is trading at 17.50 times earnings, yields 2.20% and has a sustainable dividend payout. The stock is close to my entry criteria, and could be a buying opportunity on dips below $77.

Full Disclosure: Long UTX

Relevant Articles:

  • High Yield Stocks Raising Dividends
  • My Entry Criteria for Dividend Stocks
  • Seven Dividend Aristocrats to buy on dips
  • Dividend Achievers Offer Income Growth and Capital Appreciation
  • 2 comments:

    1. Hi,

      Could you tell me where you get the ten year total annualized return? Is this something you calculate or is it easily available. I know how to calc but wanted to see if was available for screening over a large number of stocks. Also great blog!!

      ReplyDelete
    2. Does the list of Dividend Achievers include Dividend Aristocrats?

      Are there Canadian indices/ETFs that track Canadian dividend achievers and aristocrats?

      ReplyDelete

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