United Technologies (UTX) Dividend Stock Analysis
United Technologies Corporation provides technology products and services to the building systems and aerospace industries worldwide.
United Technologies is a major component of the S&P 500 and Dow Industrials indexes. The company is also a dividend achiever, which has been consistently increasing its dividends for 16 consecutive years.
Over the past decade this dividend stock has delivered an annual average total return of 9.70% to its shareholders.
At the same time company has managed to deliver a 9.80% average annual increase in its EPS since 2000. Analysts are expecting an increase in overall earnings per share in 2010 to $4.60 and $5.30 in 2011.
The company is operating under 6 divisions, each of which provides different types of products or services. Its businesses include Carrier heating, air-conditioning and refrigeration solutions; Hamilton Sundstrand aerospace and industrial systems; Otis elevators and escalators; Pratt & Whitney engines; Sikorsky helicopters; and UTC Fire & Security systems. The company also operates a central research organization that pursues technologies for improving the performance, energy efficiency and cost of UTC products and processes.
United Technolgies is well positioned to ride any major megatrends such as emerging markets growth and demand for clean energy solutions and would also be positioned well for economic rebound due to its diverse offerings. One of its divisions, Hamilton Sundstrand, has been involved in the Boeing’s 787 Dreamliner project, by delivering nine systems that contributed to the successful first flight of the airplane.
The return on equity has remained largely between a low of 20% in 2005 and a high of 25% in 2008.
Annual dividends have increased by an average of 15.80% annually since 2000, which is much higher than the growth in EPS.A 15 % growth in dividends translates into the dividend payment doubling almost every five years. Since 1970 United Technologies has actually managed to double its dividend payment almost every eight years on average.
The dividend payout had largely remained below 30% over the past decade. In 2009 there was a spike in this ratio to 38% due to the impact of the recession on earnings per share and the 10.40% dividend increase last year. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
United Technologies is currently attractively valued. The stock trades at a P/E of 18, yields 2.30% and has an adequately covered dividend payment. I would be a buyer of UTX on dips below $68.
Full Disclosure: Long UTX
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