Illinois Tool Works Inc. (NYSE:ITW) Will Pay A US$1.40 Dividend In Four Days
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Illinois Tool Works Inc. (NYSE:ITW) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Illinois Tool Works' shares on or after the 27th of March will not receive the dividend, which will be paid on the 11th of April.
The company's next dividend payment will be US$1.40 per share, on the back of last year when the company paid a total of US$5.60 to shareholders. Looking at the last 12 months of distributions, Illinois Tool Works has a trailing yield of approximately 2.1% on its current stock price of US$270.33. If you buy this business for its dividend, you should have an idea of whether Illinois Tool Works's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Illinois Tool Works
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Illinois Tool Works paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Illinois Tool Works's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Illinois Tool Works earnings per share are up 5.3% per annum over the last five years. Decent historical earnings per share growth suggests Illinois Tool Works has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Illinois Tool Works has delivered an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Should investors buy Illinois Tool Works for the upcoming dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Illinois Tool Works's dividend merits.
With that being said, if dividends aren't your biggest concern with Illinois Tool Works, you should know about the other risks facing this business. To help with this, we've discovered 1 warning sign for Illinois Tool Works that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
