Featured Articles:
- 6 Stocks Providing A Growing Income With Increased Dividends
- Dividend Stock Analysis: Is It Time To Buy ConocoPhillips?

Wednesday, August 31, 2011

United Technologies Corp. (UTX) Dividend Stock Analysis

Linked here is a detailed quantitative analysis of United Technologies Corp. (UTX). Below are some highlights from the above linked analysis:

Company Description: United Technologies Corp. portfolio includes Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators, and Carrier air conditioners, among other products.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

UTX is trading at a discount to only 3.) above. The stock is trading at a 6.2% premium to its calculated fair value of $67.39. UTX did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

UTX earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years.

The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1936 and has increased its dividend payments for 18 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

UTX earned a Star in this section for its NPV MMA Diff. of the $1,749. This amount is in excess of the $1,700 target I look for in a stock that has increased dividends as long as UTX has. If UTX grows its dividend at 11.7% per year, it will take 5 years to equal a MMA yielding an estimated 20-year average rate of 4.1%.

Memberships and Peers: UTX is a member of the S&P 500 a member of the Broad Dividend Achievers™ Index. The company's peer group includes: The Boeing Co. (BA) with a 2.7% yield, General Electric Co. (GE) with a 4.1% yield and Honeywell International Inc. (HON) with a 2.9% yield.

Conclusion: UTX did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks UTX as a 3 Star-Hold stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $72.30 before UTX's NPV MMA Differential decreased to the $1,700 minimum that I look for in a stock with 18 years of consecutive dividend increases. At that price the stock would yield 2.7%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,700 NPV MMA Differential, the calculated rate is 11.6%. This dividend growth rate is slightly below the 11.7% used in this analysis, thus providing virtually no margin of safety. UTX has a risk rating of 1.25 which classifies it as a Low risk stock.

UTX’s product leadership along with management's consistency and commitment to shareholders has produced a wide-moat. Over the last ten years, the company has shown steady growth in both earnings and dividends. UTX has a strong balance sheet with 32% debt to total capital and an excellent free cash flow payout of 35%.

Large backlogs of commercial aircraft at Airbus and Boeing will benefit UTX through 2013. UTX is currently trading above my buy price of $67.39, thus I will look for pullbacks before adding to my position.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in UTX (2.9% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

Related Articles:
- Illinois Tool Works Inc. (ITW) Dividend Stock Analysis
- Chevron Corporation (CVX) Dividend Stock Analysis
- Vectren Corporation (VVC) Dividend Stock Analysis
- Leggett & Platt, Inc. (LEG) Dividend Stock Analysis
- More Stock Analysis


Tags: [UTX] [BA] [GE] [HON]

No comments:

Post a Comment

Popular Posts - Last 7 days