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Illinois Tool's Board Okays Dividend Hike, Buyback Program

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Illinois Tool Works Inc. (ITW - Free Report) , on Aug 3, has announced twin rewards for shareholders in forms of hike in quarterly dividend rate and share buyback authorization. The news came in within ten days of the release of second-quarter 2018 results. It seems to be the prime reason behind 0.4% gain in the company’s share price at the end of trading on Aug 3.

We believe that such shareholder-friendly policies of the company reflect a strong cash position and belief in profitability growth in the future.

Inside the Headlines

This industrial machinery maker’s board of directors approved a 28% or 22 cents per share hike in the quarterly dividend rate, which now stands at $1.00 per share. The previous quarterly dividend rate was 78 cents. On an annualized basis, the dividend rate has been increased from $3.12 to $4.00.

The company will pay the revised quarterly dividend, pertaining to the third quarter of 2018, on Oct 9, 2018, to shareholders of record as of Sep 28.

Additionally, Illinois Tool has been authorized to repurchase up to $3 billion of common shares. Based on the closing price of the company’s shares on Aug 2, this new share buyback program relates to 22 million common shares.

This new program, along with $1.4 billion left from the earlier $6-billion program — which was authorized in February 2015, allows the company to repurchase up to $4.4 billion of its common shares.

Sound Capital-Allocation Strategies

Illinois Tool follows sound capital-allocation strategies, aiming to improve values for shareholders. It uses free resources for the development of products and the improvement of services while making acquisitions and rewarding shareholders through share buybacks and dividend payments.

Over the last five years (2013-2017), the company hiked the dividend rate every year, increasing the annual rate of $1.60 in 2013 to $2.86 in 2017. Notably, the company repurchased shares worth $1 billion and paid dividend amounting to $941 million in 2017, while using cash of $1 billion for repurchasing shares and $530 million for paying dividends in the first half of 2018.

We believe that an impressive financial performance going forward will enable the company to continue rewarding its shareholders handsomely through dividend and share buybacks.

For 2018, Illinois Tool anticipates buying back approximately $1.5 billion worth of common shares. Its earnings guidance for the year is at $7.50-$7.70 per share, reflecting year-over-year growth of 15 cents at the mid-point. Share buybacks for the year are targeted at $1.5 billion.

Zacks Rank & Stocks to Consider

With a market capitalization of $47.3 billion, Illinois Tool currently carries a Zacks Rank #3 (Hold). In the past three months, the company’s shares have declined 3.6% versus 2.6% gain recorded by the industry.



Also, earnings estimates on the stock decreased for both 2018 and 2019 in the past 60 days. The Zacks Consensus Estimate fell 1.8% to $7.64 for 2018 and by 1.7% to $8.29 for 2019.

Illinois Tool Works Inc. Price and Consensus
 

Illinois Tool Works Inc. Price and Consensus | Illinois Tool Works Inc. Quote

Some better-ranked stocks in the industry are Altra Industrial Motion Corp. (AIMC - Free Report) , Chart Industries, Inc. (GTLS - Free Report) and Barnes Group Inc. (B - Free Report) . While both Altra Industrial Motion and Chart Industries sport a Zacks Rank #1 (Strong Buy), Barnes Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks improved for the current year and the next year. Also, the average positive earnings surprise for the last four quarters was 4.01% for Altra Industrial Motion, 29.36% for Chart Industries and 6.88% for Barnes Group.

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