In This Article:
It looks like Illinois Tool Works Inc. (NYSE:ITW) is about to go ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Illinois Tool Works' shares on or after the 31st of March will not receive the dividend, which will be paid on the 10th of April.
The company's next dividend payment will be US$1.50 per share, on the back of last year when the company paid a total of US$6.00 to shareholders. Based on the last year's worth of payments, Illinois Tool Works has a trailing yield of 2.3% on the current stock price of US$255.89. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Illinois Tool Works has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Illinois Tool Works's payout ratio is modest, at just 49% of profit. A useful secondary check can be to evaluate whether Illinois Tool Works generated enough free cash flow to afford its dividend. Over the last year it paid out 60% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
View our latest analysis for Illinois Tool Works
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Illinois Tool Works, with earnings per share up 8.8% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.