Is a 53-Year Streak of Dividend Growth Ending for Illinois Tool Works?

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Illinois Tool Works (NYSE: ITW) may not be the most exciting company in the market. It makes products in seven industrial segments, including automotive, food equipment and polymers.

Its 2.5% dividend yield is also not especially electrifying.

But what is very impressive is the company’s track record of growing its dividend.

This year marks the 53rd consecutive year it has raised its dividend, dating all the way back to 1971. That was even before President Richard Nixon got into hot water for the break-in at the Watergate Hotel – a political scandal that seems quaint by today’s standards. But I digress.

When I profile a company with a very long history of raising its dividend, I like to point out what else was going on in the world when the streak began to put it in context and emphasize just how long ago it was.

On this date in 1971, the top song in the U.S. was “Gypsys, Tramps & Thieves” by Cher. The top movie was The Organization starring Sidney Poitier.

Clearly, Illinois Tool Works has been raising its dividend for a long time.

But will the company’s dividend-raising track record continue? Or will it become a thing of the past like the World Hockey Association, whose launch was announced on this day in 1971? (Any New England Whalers fans still out there?)

Let’s take a look at the company’s fundamentals to find out.

Illinois Tool Works’ free cash flow has been going in the wrong direction, and that’s a problem.


This year, free cash flow is forecast to grow to $3.1 billion, which would be its highest level in at least a decade – although the company will have to generate about $1 billion more in free cash flow than it did last year to meet that number.

Safety Net penalizes companies for declining cash flow. If Illinois Tool Works is able to report free cash flow above $2.5 billion, that will eliminate some of the dents in its dividend safety rating.

Additionally, because free cash flow declined so much last year, the payout ratio was a little too high for my liking. The company paid $1.5 billion in dividends on $1.9 billion in free cash flow for a payout ratio of just under 80%. I like to see payout ratios at 75% or below. That gives me comfort that the company could still afford to pay the dividend if its free cash flow were to fall further.

Thanks to the big free cash flow number projected for this year, Illinois Tool Works’ payout ratio is forecast to decline to 52%, which is good.

A lot is riding on the final free cash flow number for 2023. If it improves as anticipated, the dividend safety rating will be fairly strong. But until then, Illinois Tool Works’ dividend is only moderately safe.

Dividend Safety Rating: C

Dividend Grade Guide

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