Illinois Tool Works (ITW) Could Be a Great Choice
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Illinois Tool Works in Focus
Illinois Tool Works (ITW) is headquartered in Glenview, and is in the Industrial Products sector. The stock has seen a price change of 10.05% since the start of the year. Currently paying a dividend of $1.31 per share, the company has a dividend yield of 2.16%. In comparison, the Manufacturing - General Industrial industry's yield is 0.06%, while the S&P 500's yield is 1.66%.
Taking a look at the company's dividend growth, its current annualized dividend of $5.24 is up 3.6% from last year. Over the last 5 years, Illinois Tool Works has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.67%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Illinois Tool Works's payout ratio is 56%, which means it paid out 56% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ITW expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $9.80 per share, with earnings expected to increase 6.87% from the year ago period.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ITW is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report
