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Illinois Tool Works: The Real Deal for Your Retirement Portfolio

A history of dividend increases bodes well for long-term investors


Illinois Tool Works NYSE:ITWInvestors planning for retirement and looking for those steady-earning, dividend-paying stalwarts have a lot of names to sort through, but here I’m going to focus on just one.

As I’ve chronicled before, I like companies that actually make something tangible, mostly because if they’re run well and continue to expand their products and customer base, they can hang around for a very long time.

Here’s a manufacturer I believe is a retirement winner: Illinois Tool Works (NYSE:ITW) one of InvestorPlace‘s Real America Index components, representing the state of … Illinois.

ITW was founded in Chicago in 1912 as a maker of metal-cutting tools. Today it’s a multinational manufacturer of a diversified range of industrial products and equipment with operations in 58 countries. In terms of “making something,” here’s what that means for ITW:

  • Transportation: fasteners, fluids, and polymers
  • Industrial packaging: steel, paper and plastics for bundling and shipping products
  • Power equipment and electronics: welding guns, robotic torches and plasma cutting equipment
  • Food equipment: professional kitchen and refrigeration gear
  • Construction products: tools, fasteners and construction products
  • Polymers/fluids: adhesives, sealants and lubricants
  • Decorative services: laminates and kitchen worktops

Product diversification is the key for ITW, with innovation the driving force behind what’s now a $17 billion-in revenue operation. One of the many things  I like about ITW is how it manages the distribution channel for the businesses. Each of its 825 distributors is seen as a decentralized business unit, with each having profit-and-loss responsibility.

But at the end of the day, it’s about corporate results and investor returns, and in both cases investors have reasons to cheer — and consider ITW for a long-term investment.

Start with a steady growth pattern in sales, gross and net profit over the last five years, despite a slight dip in 2009 to 2010 when manufacturing as a whole slumped. Annual revenue growth comes in at a steady 6.8%, with EPS growth over that same period coming in at just over 8%.

Remember: We don’t necessarily need to hit one out of the park, enough singles and doubles gets you into the Hall of Fame.

What’s nice is EPS growth estimates for the next five years come in at nearly 10%, according to data compiled at FINVIZ. And two of ITW’s main growth engines, transportation and construction, are still recovering and tamping down expectations.

Of course, steady growth should be rewarded in stock appreciation, and ITW hasn’t disappointed, gaining over 35% in the last five years. For you long-horizon investors, ITW has delivered annual returns of over 13% for the past 40 years.

What we really want to know is, just in case the company lags in earnings, what can investors expect from their dividends? Good news on that front, too: ITW hasn’t missed a dividend payment since it started making them in 1933, and it’s on a streak of 49 consecutive years of dividend increases.

ITW provides $1.52 annual dividends now, yielding around 2.30%. It has plenty of room for increases because the dividend payout is 33.8%, and the company sits on a pile of cash and equivalents of over $2 billion. Plus, it has $550 million in free cash flow.

What more can I say? I like this company, and think it deserves consideration by investors seeking long-term dividends and stability. See if it’s right for you, too.

Marc Bastow is an Assistant Editor at As of this writing he does not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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