Today I added to my existing position in Illinois Tool Works (ITW). ITW is an industrial products and equipment maker operating in over 50 countries around the world.
This company should be fresh in your mind if you have been reading DGI blogs recently, as several investors have initiated a position in ITW, or added to their existing ITW position.
For that reason, I’m not going to dive into many of the company fundamentals here.
However, I will say that while sales and earnings have been choppy over the past decade, management has been able to improve both pre-tax profit on sales and return on equity.
On the downside, long-term debt has risen significantly over the past 5 years. However, on the upside, share count is on a noticeable decline, and cash flow is increasing.
From a price perspective, ITW has had a rough 2018. After peaking with the market in late January just under $180 per share, it’s been a fairly orderly decline for ITW to the mid $130s, just above a 52-week low. The price got low enough for me to invest a little more cash into the company.
Let’s take a look at my purchase details…
ITW
On Wednesday, 8/22/18, I purchased 10 shares at $136.40/sh, for a total of $1,366.00 after commission.
This is roughly a 20% increase in my position, and brings my total share count to 57.951 shares.
My original ITW purchase was 3 years ago at a price of $85.71/sh. I certainly can’t complain about my return thus far.
This additional purchase brings my ITW cost basis up to $96.52.
ITW shares were yielding ~2.93% at my recent purchase price… a good 0.3% above my Portfolio average. This yield for ITW is about the highest it’s been in 7 years.
This purchase results in an additional $40 in annual forward dividend income, sending my total a tad over $8,712. This also means I surpass the $8,700 annual forward dividend income goal I set at the beginning of 2018… Woohoo!
Here’s a look at the dividend growth history for ITW, dating back to the year 2000.
ITW has raised their dividend for an astounding 55 years in a row, including 2018.
Earlier this month, ITW increased their dividend by over 28%. Wow!… and I thought last year’s 20% raise was impressive.
As you can see from the table above, ITW has outstanding short-term and long-term dividend growth rates.
In addition, the payout ratio is about 52% based on this year’s earnings estimates, leaving ample room for future dividend increases.
In summary, I’m happy to add a few ITW shares at this time. However, I’d certainly like ITW’s fundamentals to become a bit stronger in the coming years… perhaps the fundamentals can become as strong as their dividend history!
Is ITW on your watchlist at its current price? Or might you have already added ITW recently? Are there other companies in the industrial sector that you prefer right now? I look forward to your comments!
Thanks for reviewing your new purchase ED. I love companies that increases their dividend on an animal basis. I’ll add it to my watch list. This stock is a great candidate to sell a naked put options.
Happy to do the review, Leo. It’s hard to beat 55 consecutive years of dividend increases… so I’m excited to add to my ITW position.
What’s your thinking on the naked put options? What makes it a nice candidate? I haven’t written naked puts before, so I’m hoping you’ll share your insights.
I have two purposes for writing naked put options. Either to earn the free premium or to buy the stock cheaper. I just wrote a naked put options for two contracts for ITW yesterday with a strike price of $125/share and expire in January 2019. I collected $3.20/share. So I f have to buy the stock, I will be glad to buy it at about $122/share after factoring in the premium. The current price is $135/share, so I will be buying it about 10% cheaper. On the other hand, I will keep premium for free if ITW never drops below $125/share.
OK. Same thought process I use for my cash-secured puts. However, with the cash-secured put method, the high stock price of ITW and long duration would lock up my cash ($25K in this instance, for 2 contracts) for quite a long time (5 months).
I assume this is done on margin with the naked puts? That way you can write the option and have a smaller cash outlay? What percentage of the $25K do you need to make available in cash to write the naked put option, Leo?
You don’t need to put any cash upfront. You just need a margin account and have sufficient buying power. So when I sell my put options, I don’t have to have any of my cash locked up. If you have a sizeable portfolio, you can use it as leverage to increase your passive income and investment return.
Nice addition to your existing position, and that prior cost basis was fantastic! I know that ITW has been very popular across the DGI community with that amazing increase this year. I don’t have any plans to add it at this time because I am trying to focus my attention on my existing positions for awhile, but that dividend growth history is tempting.
Speaking of which, I think this is another spreadsheet feature that I may need to adopt as I love being able to have the running history of the different growth rates over time, rather than a point in time you get from most sites. Looks like I will have some more spreadsheet tinkering to do! =)
Forgot to mention….congrats on surpassing your annual forward dividend income goal too! Very happy to see that amazing progress!
Thanks! I’m happy to have reached the goal, and even more excited to have done it so early in the year. It just means even bigger totals are in store for 2019!
Hey DivvyDad. Trying to add to existing positions in the portfolio is why I chose to add to ITW. So I understand your thinking.
Yes, another spreadsheet enhancement is always fun. I certainly like having the dividend growth data at my fingertips. It provides a nice way to see the short-term and long-term trends in the company’s dividend growth.
Hi ED,
Nice addition to your portfolio and I can definitely see that it’s popular among dividend growth investors lately. I would love to have this dividend aristocrat in my portfolio but I’m afraid that I will not have enough funds available while it’s price is in the dip. Out of curiosity, what would be your cut-off point in price for ITW with their current fundamentals? 🙂
-BI
I wasn’t planning on a purchase myself, BI. However, I wasn’t sure I’d get another chance to purchase at this level, so I made the decision to add some shares now. Perhaps I will end up being too early, but in the long-run it hopefully won’t matter.
I was looking for a price below $138. It had dipped below that level 2-3 times in the days/weeks prior, but I wasn’t prepared to purchase.
Eng –
Fricken. Love. It.
-Lanny
Oh, yeah! I’m loving it, too, Lanny. I’m just following that good example you and Bert set for me with your ITW purchases!
First off, congratulations on crossing that goal for 2018! Its great to make the numbers you are aiming for.
Second congrats on a nice buy. Another one nabbing at shares from ITW. You guys must be on to something and I’ve put it on my watchlist. Still haven’t made my August buy so who knows?
Thanks, Mr. Robot. It’s always nice to achieve our goals. I’m looking forward to seeing how far I can push the forward dividend income before year’s end… it’s all gravy until then.
Yes, ITW has been popular as of late… and as you can see, I agree with the assessment based on my purchase. ITW has been very good to me thus far, and I look forward to more gains in the future.
Glad you could stop by and comment!