股市小書生
價值投資
Dividend Aristocrats—stocks in the S&P 500 Index with at least 25 consecutive years of dividend increases
The full list of 52 companies follows:
- 3M Company (MMM)
- AFLAC Inc. (AFL)
- AbbVie Inc. – (ABBV)
- Abbott Laboratories (ABT)
- Air Products & Chemicals Inc (APD)
- Archer-Daniels-Midland Co (ADM)
- AT&T (T)
- Automatic Data Processing (ADP)
- C. R. Bard (BCR)
- Becton Dickinson (BDX)
- Bemis Company (BMS)
- Brown-Forman (Class B shares BF/B)
- Cardinal Health Inc. – (CAH)
- Chevron Corp. – (CVX)
- Cincinnati Financial Corp (CINF)
- Cintas Corp (CTAS)
- The Clorox Company (CLX)
- Coca-Cola Co (KO)
- Colgate-Palmolive (CL)
- Consolidated Edison Inc (ED)
- Dover Corp (DOV)
- Ecolab Inc (ECL)
- Emerson Electric (EMR)
- Exxon Mobil Corp (XOM)
- Federal Realty Investment Trust (FRT)
- Franklin Resources (BEN)
- General Dynamics (GD)
- Genuine Parts Company (GPC)
- W. W. Grainger (GWW)
- Hormel Foods Corp (HRL)
- Illinois Tool Works (ITW)
- Johnson & Johnson (JNJ)
- Kimberly-Clark (KMB)
- Leggett & Platt (LEG)
- Lowe's Companies, Inc. (LOW)
- McCormick & Company (MKC)
- McDonald's (MCD)
- Medtronic (MDT)
- Nucor (NUE)
- PPG Industries (PPG)
- PepsiCo (PEP)
- Pentair – (PNR)
- Procter & Gamble (PG)
- S&P Global (formerly McGraw Hill Financial, Inc. SPGI)
- Sherwin-Williams (SHW)
- Stanley Black & Decker Inc. (SWK)
- Sysco (SYY)
- T. Rowe Price (TROW)
- Target Corporation (TGT)
- VF Corporation (VFC)
- Walmart (WMT)
- Walgreen Boots Alliance (WBA)
(Published by Bob Ciura on June 22)
Surprisingly, several members of the Dividend Aristocrats—stocks in the S&P 500 Index with at least 25 consecutive years of dividend increases—come from the industrial sector.
In fact, of the 51 Dividend Aristocrats, nine are industrials, which includes 3M (NYSE:MMM), Emerson Electric (NYSE:EMR) and more.
You can see the entire list of 51 Dividend Aristocrats here.
This could come as a surprise since industrials are economically sensitive. When the economy goes into recession, these stocks should be among the hardest hit.
Yet, many continued to raise their dividends during the Great Recession.
United Technologies Corp. (NYSE:UTX) is no exception.
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While it is not a Dividend Aristocrat, it is a Dividend Achiever, a group of stocks with at least 10 years of consecutive dividend growth.
You can see the entire list of all 264 Dividend Achievers here.
United Technologies has paid uninterrupted dividends since 1936. It recently raised its dividend by 6%.
For several reasons, United Technologies is a blue-chip dividend stock.
Business overview
United Technologies is a global industrial giant. It generates $57 billion in annual revenue. The stock has a market capitalization of $97.55 billion.
The company operates four segments:
- Otis (20% of total revenue).
- Climate, Controls and Security (29% of total revenue).
- Pratt and Whitney (26% of total revenue).
- Aerospace Systems (25% of total revenue).
Each business segment generates more than $10 billion in annual revenue.
2016 was another year of growth for the company.
Revenue and diluted earnings per share increased 2% and 4.9%, respectively, for the year.
This was a strong performance in a year marked by global uncertainty. 2016 was the year of Brexit, the U.S. elections and slowing economic growth in key emerging markets such as China.
These factors have elevated global economic risks, but United Technologies continues to post steady growth.
It has many growth catalysts to look forward to over the next several years.
Growth prospects
United Technologies expects positive growth across all of its major business segments through 2020, led by the Pratt and Whitney segment.
Source: Deutsche Bank Global Industrials Summit, page 9
Pratt and Whitney is expected to grow at a 10% compound annual rate through the end of the decade. This is arguably United Technologies’ strongest growth catalyst moving forward.
Strong demand in the commercial aftermarket is expected to propel Pratt and Whitney for the next three years.
United Technologies expects high single-digit organic growth for the segment in 2017, with accelerating growth thereafter. Increased execution for military programs such as the F-22 Raptor, F-35 and B-21 Raider is expected to be a lasting tailwind.
Separately, aerospace is another growth catalyst for United Technologies.
In 2016, the aerospace segment simultaneously grew revenue and expanded profit margins.
Segment revenue increased 2.6% for the year, while the profit margin expanded by 250 basis points.
Source: Deutsche Bank Global Industrials Summit, page 19
Through 2020, the company expects aerospace revenue and operating profit will increase 5% to 7% and 7% to 9% each year, respectively.
There is a massive long-term growth opportunity for United Technologies in aerospace, particularly in the commercial market.
According to the company, there are currently 27,000 aircraft in service. By 2030, there are expected to be 47,000 aircraft in service.
This growth will allow United Technologies to benefit from growing demand for jet engines.
The company is off to a good start to 2017. First-quarter revenue and adjusted EPS rose 3% and 1%.
For 2017, United Technologies expects overall organic sales growth of 2% to 4%. This should be more than enough growth to continue raising the dividend for many years.
Competitive advantages and recession performance
United Technologies benefits from several competitive advantages, including its intellectual property and global scale.
The company has an extensive patent portfolio and intellectual property thanks to significant investments in research and development:
- 2012 R&D expense of $3.5 billion.
- 2013 R&D expense of $4.1 billion.
- 2014 R&D expense of $4.5 billion.
- 2015 R&D expense of $3.9 billion.
- 2016 R&D expense of $3.7 billion.
Such a high level of R&D spending allows the company to innovate and come up with new products.
For example, the company’s climate, controls and security business launched 132 new products in 2016 that are expected to generate organic sales growth.
United Technologies generates high profit margins and steady earnings even when it enters a recession. Its performance during the Great Recession is as follows:
- 2007 EPS of $4.27
- 2008 EPS of $4.90
- 2009 EPS of $4.12
- 2010 EPS of $4.74
The company’s earnings fell in 2009, but quickly recovered. By 2010, EPS had exceeded the pre-recession level of 2007.
United Technologies performed well during the recession, particularly since it is an industrial company, which is traditionally an economically sensitive industry.
Valuation and expected total returns
United Technologies stock trades for a reasonable price-earnings ratio of 19. This represents a discount to the broader market average.
The S&P 500 Index trades for an average price-earnings ratio of 26.
It is fair to expect United Technologies to trade for at least a market multiple given its status as a high-quality, blue-chip company.
As a result, the stock appears to be undervalued.
In addition to a higher valuation multiple, investor returns will be generated from earnings growth and dividends.
A potential breakdown of United Technologies’ expected total returns is as follows:
- 4% to 6% organic revenue growth.
- 1% margin expansion.
- 1% share repurchases.
- 2.3% dividend yield.
Under this scenario, total returns are expected in a range of approximately 8% to 10% per year going forward.
Dividends are an important piece of total returns.
Source: Investor Relations
United Technologies has a forward dividend payout of $2.80 per share, good for a 2.3% yield.
The company recently raised its dividend by 6%. It can raise its dividend because of its strong business model, which generates lots of cash.
United Technologies generated free cash flow of $4.7 billion in 2016, and utilized $2 billion for dividends and another $2.2 billion for share repurchases.
In addition, it has a strong balance sheet with $7.1 billion in cash and a debt-to-capitalization ratio under 50%.
Final thoughts
United Technologies is a stalwart among blue-chip dividend stocks.
It has paid steady dividends for eight decades, and has raised its dividend each year for more than 10 years.
The company has done this through innovation and a commitment to rewarding shareholders.
The stock appears to be undervalued based on its current valuation. United Technologies is an attractive stock for income and dividend growth.
Disclosure: I am not long any of the stocks mentioned in this article.
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