Up to date on October thirteenth, 2022, by Nikolaos Sismanis
The Dividend Kings are a bunch of simply 45 shares which have elevated their dividends for at the least 50 years in a row. We imagine the Dividend Kings are among the many highest-quality dividend development shares to purchase and maintain for the long run.
With this in thoughts, we created a full record of all 45 Dividend Kings. You possibly can obtain the total record, together with essential monetary metrics akin to dividend yields and price-to-earnings ratios, by clicking on the hyperlink under:
Annually, we individually evaluation all of the Dividend Kings. The following within the collection is Illinois Software Works (ITW).
Illinois Software Works has elevated its dividend for 59 consecutive years, which is particularly spectacular because it operates in a extremely cyclical sector. This text will focus on the most important components for Illinois Software Works’ lengthy dividend historical past.
Enterprise Overview
Illinois Software Works has been in enterprise for greater than 100 years. It began all the way in which again in 1902 when a financier named Byron Smith positioned an advert within the Economist. On the time, Smith was trying to spend money on a “high-class enterprise (manufacturing most well-liked) in or close to Chicago.” A bunch of inventors approached Smith with an concept to enhance gear grinding, and Illinois Software Works was born.
At the moment, Illinois Software Works has a market capitalization of $68 billion and generates annual income of practically $15 billion. Illinois Software Works consists of seven segments: automotive, meals gear, check & measurement, welding, polymers & fluids, development merchandise, and specialty merchandise.
These segments have carried out very effectively in opposition to their friends and allowed Illinois Software Works to attain “better of breed” standing in its trade.
Illinois Software Works’ portfolio is concentrated in product segments that every maintain above-average development potential of their respective markets. The overarching strategic development plan for Illinois Software Works is to constantly reshape its enterprise mannequin, when mandatory. The corporate continuously makes use of bolt-on acquisitions to increase its attain.
Progress Prospects
Whereas 2020 was a really troublesome 12 months for the worldwide financial system as a result of coronavirus pandemic, which weighed closely on financial development, Illinois Software Works continued to generate regular earnings. In 2021, the corporate continued to develop its earnings, and the inventory value continued to run larger, with a complete 12 months return of 23.4% for the complete 12 months of 2021.
On August 2nd, 2022, Illinois Software Works reported second quarter 2022 outcomes for the interval ending June thirtieth, 2022. For the quarter, income got here in at $4.0 billion, up 9% year-over-year.
Supply: Investor Presentation
Gross sales had been up 14% within the automotive OEM phase, the most important of the corporate’s seven segments. 5 of the opposite segments noticed gross sales development above 20%, with the final phase being flat. Web earnings equaled $738 million or $2.37 per share in comparison with $775 million or $2.45 per share in Q2 2021.
Illinois Software Works additionally reiterated its 2022 earnings steering.
Supply: Investor Presentation
Administration expects $9.00 to $9.40 in earnings-per-share for the total 12 months. On the similar time, the corporate decreased its income development estimates to six% to 9% (down from 8.5% to 11.5%). The corporate additionally plans to have repurchased $1.5 billion of its personal shares by 2022. Thus, EPS is predicted to develop by 8.1% on the midpoint of administration’s steering.
Three days following its earnings report, Illinois Toolwards introduced its 59th consecutive annual dividend improve, boosting the dividend by 7.4% to a quarterly fee of $1.31.
General, we count on 7% annual EPS development over the following 5 years, comprised primarily of income development and share buybacks.
Aggressive Benefits & Recession Efficiency
Illinois Software Works has a big aggressive benefit. It possesses a large financial “moat,” which refers to its capacity to maintain competitors at bay. It does this with a large mental property portfolio. Illinois Software Works holds greater than 17,000 granted and pending patents.
Individually, one other aggressive benefit is Illinois Software Works’ differentiated administration technique. The corporate has employed a administration course of known as “80/20”. That is an working system that’s utilized to each enterprise line at Illinois Software Works. The corporate focuses on its largest and greatest alternatives (the “80”) and seeks to eradicate prices or divest its much less worthwhile operations (the “20”).
On the similar time, Illinois Software Works has a decentralized, entrepreneurial company tradition. This additionally units the corporate aside from the competitors. Illinois Software Works empowers its numerous companies with vital flexibility to customise their very own approaches to serving prospects in one of the best ways attainable.
One potential draw back of Illinois Software Works’ enterprise mannequin is that it’s susceptible to recessions. As an industrial producer, Illinois Software Works is reliant on a wholesome international financial system for development.
Earnings-per-share efficiency through the Nice Recession is under:
2007 earnings-per-share of $3.36
2008 earnings-per-share of $3.05 (9% decline)
2009 earnings-per-share of $1.93 (37% decline)
2010 earnings-per-share of $3.03 (57% improve)
That mentioned, the corporate remained extremely worthwhile through the Nice Recession. This allowed it to proceed rising its dividend every year through the recession, even when earnings declined. And, due to its sturdy model portfolio, the corporate recovered rapidly. Earnings-per-share soared 57% in 2010. By 2011, earnings-per-share surpassed 2007 ranges.
The same sample was seen in 2020 because the coronavirus pandemic brought on an financial recession. Illinois Software Works’ earnings-per-share declined in 2020, however the decline was manageable, and the corporate continued to lift its dividend.
Valuation & Anticipated Returns
Utilizing the present share value of ~$187 and the midpoint for earnings steering of $9.20 for the 12 months, Illinois Software Works trades for a price-to-earnings ratio of 20.3. Given the corporate’s cyclical nature, we really feel {that a} goal price-to-earnings ratio of 19 is acceptable. That is roughly in step with the corporate’s 10-year historic common.
In consequence, Illinois Software Works may very well be barely overvalued. Returning to our goal price-to-earnings ratio by 2027 would scale back annual returns by 1.3% over this time period. Other than modifications within the price-to-earnings a number of, future returns will probably be pushed by earnings development and dividends.
We count on 7% annual earnings development over the following 5 years. As well as, Illinois Software Works inventory has a present dividend yield of two.8%.
Complete returns may encompass the next:
7% earnings development
-1.3% a number of reversion
2.8% dividend yield
Illinois Software Works is predicted to return 5.2% per 12 months by 2027. In consequence, we’ve got a maintain suggestion on Illinois Software Works, although the corporate’s capacity to lift dividends by a number of recessions is spectacular.
The corporate now has 59 consecutive years of dividend development after rising its dividend by 7.4% in August 2022.
Remaining Ideas
Illinois Software Works is a high-quality firm and a good higher dividend development inventory. It has a strategic development plan that’s working effectively, and shareholders have been rewarded with rising dividends for 59 years.
The inventory additionally has a good 2.8% dividend yield, which may make it an interesting alternative for long-term dividend development traders. Shares usually are not significantly overvalued, however nonetheless costlier than what we really feel makes for a good a number of, and it’s possible the corporate will wrestle if and when a recession happens.
Regardless of its standing as a Dividend King, we propose traders anticipate a greater entry level prior earlier than buying shares of Illinois Software Works.
The next articles comprise shares with very lengthy dividend or company histories, ripe for choice for dividend development traders:
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected].