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Illinois Tool Works Ups Dividend

ITW GE MTW

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Illinois Tool Works Inc.’s (ITW - Analyst Report) Board of Directors approved a 6.0% hike in the company’s quarterly dividend rate. The revised quarterly rate now stands at 38 cents per common share compared with 36 cents previously, resulting in an annual rate of $1.52 per common share.

The revised dividend will be paid on October 10 to shareholders of record as of the close of business on September 28.  

Over time, the company has been following a policy of returning cash to its shareholders via dividend payments and share buybacks. In the second quarter of 2012, the company distributed $172 million as dividends and repurchased shares worth $526 million. The company is still left with $2.9 billion in its share buyback program.

Year-to-date, the company has paid roughly $346 million in dividends and bought back shares worth $1 billion.

We believe the company’s strong cash position is supportive of its shareholder-friendly policy. Exiting the second quarter, the company’s cash balance stood at $1,692.0 million and showed a 30% increase over the previous quarter. Also, net cash flow from operating activities was $509.0 million, compared with $312.0 million in the year-ago quarter.

Recently announced, the company’s second quarter 2012 financial results were plagued by higher negative currency translation impact. Though earnings per share surpassed the year-ago earnings by 16% and the Zacks Consensus Estimate by 2 cents, total revenue growth was restricted to just 0.9%. Management, accounting for a negative currency translation impact and higher restructuring charges, lowered its revenue growth and earnings per share guidance.

Management’s earnings per share guidance for the third quarter 2012 stands at $1.03-$1.11, with the Zacks Consensus Estimate near the mid-point at $1.06, up 6.29% year over year. Estimates for 2012 and 2013 are at $4.12 and $4.54, representing year-over-year growth of 0.93% and 10.13%, respectively.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipment operating through 800 business units in 57 countries. It competes with companies like Cooper Industries plc , General Electric Co. (GE - Analyst Report) and Manitowoc Co. Inc. (MTW - Analyst Report).

We currently maintain a Neutral recommendation on Illinois Tool Works. The stock also bears a Zacks #4 Rank, implying a short-term Sell rating.

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