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Illinois Tool Works (ITW) Stock Analysis

by | Dividend Aristocrats & Champions

Illinois Tool Works Logo with Globe

Illinois Tool Works Dividend

(updated 8/18/2017)

The Illinois Tool Works (ITW) dividend has been paid continuously since 1933 and increased for 42 consecutive years; qualifying the company as a Dividend Aristocrat and Dividend Champion.

Price: $135.67
Current Dividend: $3.12  <= 20% Dividend Increase

Dividend Yield: 2.3%
Cash Dividend Payout Ratio: 45%

Market Capitalization: 47 B
Enterprise Value: 52 B

Description

Sector: Industrials
Industry: Diversified Industrials

Illinois Tool Works is a manufacturing conglomerate of industrial products and equipment. The company has been pieced together over decades with hundreds of acquisitions. Revenue is near evenly split between North America and the rest of the world (Europe, Middle East, Africa, and Asia).

The company is divided into seven segments:

Automotive OEM (Original Equipment Manufacturer) (21% of Revenues)

ITW is a leading niche supplier of unique technical and manufacturing products and services including producing components, fasteners, and assemblies for automobiles and light trucks.

Test and Measurement (15%):

Provides refined test and measurement solutions for maintenance, repairs, and operations (MRO). Products include equipment, consumables, and testing and measurement software.

Food Equipment (16%)

Products and services for restaurants and food retailers.

Specialty Products (14%)

ITW focuses on niche opportunities that provide above average margins including consumables, appliance components, coding and marking equipment, etc.

Polymers & Fluids (12%)

ITW produces lubricants and fluids, adhesives, sealants, janitorial and hygiene products, and polymers for auto aftermarket maintenance and appearance.

Construction Products (12%)

Supplier of branded fastening systems and solutions for the construction industry. Products include anchors, fasteners, and tools for wood, truss components, metal, and concrete.

Welding (11%)

Produces value added welding equipment and specialty consumables and accessories for commercial and industrial operations.

Dividend Analyzer Checklist

(updated July 2017)

Dividend Safety Score (17/33 points)

Dividend Per Share (ttm): $2.50
Dividend Payout Ratio (ttm): 40%
Dividend Per Share (10 Year Growth): 12%
Cash From Operations (CFO) Per Share (ttm): $6.47
CFO Dividend Coverage (CFO / DPS): 2.6 (2/6 points)
Free Cash Flow (FCF) Per Share (ttm): $5.68
FCF Dividend Coverage (FCF / DPS): 2.3 (4/6 points)
Net Financial Debt: $5608 M
Total Assets: $15529 M
Net Financial Debt / Total Assets: 36% (4/12 points)
Net Financial Debt to EBITDA (ttm): 209%
Total Liabilities to Assets Ratio (Qtr.): 71%
Piotroski Score (1-9) (TTM): (7/9 points)

Profitability & Growth Score (15/33 points)

Revenue (10 Year Growth) *CAGR > 4.14%: 0.6% (0/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 6.8% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 1.1% (0/6 points)
Operating Earnings Yield (ttm): 6.1% (2/7 points)
Net Income (ttm): $2103 M
Gross Profit (ttm): $5792 M
Total Assets: $15529 M
Gross Profitability Ratio = GP / Total Assets: 37.3% (9/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 16%
Return on Invested Capital (ROIC): 17%
Return on Invested Capital (ROIC) (5 Year Median): 16%
Return on Invested Capital (ROIC) (10 Year Median): 15%

Valuation Score (11/34 points)

Free Cash Flow Yield (ttm): 3.9% (4/9 points)
EV to EBIT (ttm): 17.3 (4/9 points)
EV to EBITDA (ttm): 15.1 (3/9 points)
PE10: 33.1 (0/7 points)
Price to Sales Ratio (ttm): 3.6
Price to Book Value (ttm): 10.9
Price to Earnings Ratio (P/E) (ttm): 23.9

TOTAL POINTS – (43/100) (50 is an average score)

*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.

Illinois Tool Works Earnings Report Dates

SWOT Analysis For Illinois Tool Works

Strengths

ITW began a five year restructuring plan in 2013 that shows some signs of success. Management is implementing an 80/20 business process which focuses on the 20% of its customers and products that generate 80% of its revenues and profits. Its decentralized entrepreneurial culture allows individual businesses to be innovative and responsive to its customer needs.

Weaknesses

Revenue growth has been almost non-existent for 10 years. Sluggish global growth has complicated the challenge to increase
organic growth. ITW depends on acquisitions in which they have been prone to pay high prices to obtain.

Opportunities

ITW has been restructuring its businesses into a more simple, efficient, and competitive company. They have shed some of their less profitable businesses and reduced their divisions from 800 to to 85.

Threats

Most of Illinois Tool Works businesses are mature and have inferior growth prospects. With only a small R&D budget the company has only one avenue for future growth: acquisitions.

Conclusion

(updated July 2017)

Illinois Tool Works (ITW) is ranked #147 (out of 251) overall and #34 (out of 57) in the Industrials Sector by the Dividend Analyzer.

Given the growth challenges facing the company and its mediocre record the last 10 years, it is an average stock with an above average valuation.

Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Avoid
Looking For Exposure to Industrials Sector / Avoid
Deep Value Investors / Avoid

Portfolio Position Disclosures:
DVB Foundation Portfolio: None
DVB Dividend Growth Portfolio: None
DVB High Income Portfolio: None
Arbor Asset Allocation Model Portfolio (AAAMP): None

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Disclaimer: While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.
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