Tuesday, December 21, 2010

Illinois Tool Works Dividend Stock Analysis

Illinois Tool Works (NYSE: ITW) is a multinational manufacturer of a diversified range of industrial products and equipment.

The Company has approximately 840 operations in 57 countries, which are aggregated and organized into eight segments: Transportation, Industrial Packaging, Food Equipment, Power Systems and Electronics, Construction Products, Polymers and Fluids, Decorative Surfaces and All Other.

EPS, Dividends, FCF

Expected Earnings
  • 2010 - 3.06
  • 2011 - 3.68
Expected Dividends
  • 2010 - 1.30
  • 2011 - 1.36 
 Cash Flow
  •  Cash flow per diluted share has grown significantly over the past 10 years, averaging 12.07% annually.
Revenue and Margins

Revenue decreased by 18.85% between 2008-2009.  In fy 2010 ITW expects revenue to grow between 13-14%

Over the past 10 years ITW has grown revenue by an average of 4.24% annually.  This number would be greater if we discount 2009, which was a poor year.

As of 2009, 48% of revenue was from North America, 34% from Europe, Middle East and Africa, and 18% from Asia / Pacific.

Gross margin has been stable around 35%, but both operating and net margins have fallen off in recent years.  Operating margin decreased from a high of 17.91% in 2006 to 9.99% in 2009, and net margin  decreased from it's 2006 high of 12.45% to 6.82% in 2009.


ITW has a healthy balance sheet.  Debt / Total Capital employed is 26.19%

  • Total Debt / Equity - 0.35
  • Long Term Debt / Equity - 0.33
  • Current Ratio - 2


Return on Equity has decreased 44% in the past two years, from 20.36% to 11.48%.

Cash Return on Total Capital has decreased by 13% in this same time period, from 18.29% to 15.9%

Payout Ratios

Though the payout ratio has shot up in recent years due to lower eps, the company still has a low cash payout ratio of 33%, leaving plenty of room for dividend growth.

Stock Price

Current Price - 52.71

P/E (ttm) - 27.89

2010 P/E - 17.06 

2011 P/E - 14.32

P/Cash Flow - 13.94

PEG (2 year expected) - 0.9

Dividend Yield - 2.47%

2011 Dividend Yield -  2.58%


ITW's over 800 decentralized business units hold 19,000 patents across the world, including such everyday items as a common zip-lock bag fastener, the plastic 6 pack ring holder, and those plastic interlocking fasteners found on everything from luggage to backpacks to life-jackets.  In 2009 alone they were awarded 1200 new US and foreign patents.  A portfolio of indispensable products, a track record of innovation, and strong management make a compelling argument that this company has long-term earning potential.

Analysts expect the company to see strong growth in the next few years, mainly from emerging markets.  Many of the products ITW makes are early cycle businesses, such as automotive, polymers and fluids, and construction.  As countries enter the global marketplace, these products will be in high demand.

I find ITW attractively valued at the current price.  Analysts believe the stock can make it into the low 60's in the next two years, which could mean a low double digit return in addition to the dividend.

Full Disclosure:  I do not own any ITW.  My portfolio holdings can be seen here

Further Reading


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