Friday, August 20, 2010

Illinois Tool Works (ITW) Dividend Stock Analysis

Illinois Tool Works Inc. manufactures a range of industrial products and equipment worldwide. This dividend champion has raised dividends for 46 years in a row. The company most recently announced a 9.70% dividend increase to 34 cents/share.

Over the past decade, this dividend stock has delivered an annual total return of 5.70%.

At the same time the company has managed to increase earnings per share by 2.30% per year. In 2009, earnings per share declined by 36% due to weak revenues caused by the global recession. Analysts are estimating FY 2010 and FY 2011 EPS to increase to $3.05 and $3.60 respectively. The company derives over 57% of its revenues from international operations. In addition to that it is operating under eight segments: Industrial Packaging, Power Systems & Electronics, Transportation, Construction Products, Food Equipment, Decorative Surfaces, Polymers & Fluids and All Other.

Return on Equity has decreased from 19% in 2000 to 12% in 2009.

Dividends per share have increased by 14% annually over the past decade. A 14% increase in dividends translates into the dividend payment doubling every 5 years on average. Since 1989 the company has indeed managed to raise dividends every 5 years on average.

The dividend payout ratio has more than doubled over the past decade, from 24% in 2000 to 64% in 2009. This is a direct result of the fact that dividends have been increasing much faster than earnings over the past decade.

Currently Illinois Tool Works trades at a P/E of 14.40, yields 2.70% and has an adequately covered dividend payment based off next year’s earnings. I would add to my position there subject to availability of funds in my portfolio.

Full Disclosure: Long ITW

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