Wednesday, July 16, 2008

United Technologies (UTX) Dividend Analysis

United Technologies Corporation provides technology products and services to the building systems and aerospace industries worldwide. The company's segments include Otis, Carrier, UTC Fire and Security, Pratt and Whitney, Hamilton Sundstrand and Sikorsky.

UTX is a dividend achiever as well as a component of the S&P 500 and Dow Jones Industrials indexes. It has been increasing its dividends for the past 14 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 17.20 % to its shareholders.

At the same time company has managed to deliver a 14.50% average annual increase in its EPS since 1998.

The ROE has decreased over the past ten years from a little over 28% to a little over 19%.

Annual dividend payments have increased over the past 10 years by an average of 14.20% annually, which is the same as the growth in EPS. A 14 % growth in dividends translates into the dividend payment doubling almost every five years. If we look at historical data, going as far back as 1977, UTX has actually managed to double its dividend payment every seven and a half years on average.

If we invested $100,000 in UTX on December 31, 1997 we would have bought 5494 shares (Adjusted for two 2:1 stock splits). In February 1998 your quarterly dividend income would have been $ 425.79. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $2032 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 313 %. If you reinvested it though, your quarterly dividend income would have increased by 377 %.

The dividend payout has remained at or below 30% 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 UTX is attractively valued with its low price/earnings multiple of 14, low DPR and a market average dividend yield of 2.10%.

Disclosure: I do not own shares of UTX
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