Illinois Tool Works

Business runs like a machine

More than 800 subsidiaries, more than 50,000 hardworking employees who file around 1,600 patents a year, juicy annual revenue of more than €12 billion - and yet hardly anyone here in Germany knows this conglomerate. 3M Company, on the other hand, is a bit better known. Whether well known or not doesn't really matter here, though. You don't always have to be in the spotlight to make fat profits. If you look at the company's stock and its rising dividend, you quickly notice how stable and good business is.

The giant Illinois Tool Works is active in lots of different industrial sectors. It's an auto supplier, a commercial kitchen outfitter, a welding specialist, and a polymer manufacturer. It also produces test equipment and specialty products and is a construction supplier on top of that. Those were ITW's 7 strongest pillars, but far from all of them.

The history and business model of Illinois Tool Works Inc.

In 1910, the financier Byron L. Smith placed an ad in the Economist to bring a business idea to life. It had to be a first-class idea, preferably in manufacturing. For 2 years he turned down a whole lot of ideas, but then 4 young inventors approached him. They showed him a new way to grind gears faster and more cleanly and got the deal. Illinois Tool Works was born. The team worked like crazy seven days a week to build new cutting machines and milling cutters.

Business was great, and they kept working on their products. The money they earned was mostly used to open up other business areas. ITW quickly grew into a huge multi-industry conglomerate that's active globally in the most diverse industries. So the company doesn't just make fuel injectors for cars or dishwashers for cafeterias, but also has special components for deep-sea drilling, aerospace, or medical technology in its product portfolio.

What's coming for ITW over the next few years?

You can assume the next few years will continue to be profitable and successful. That wasn't always the case. From the early 2000s until 2012, the stock took a breather. Management responded and launched a restructuring. They parted ways with some subsidiaries that weren't performing optimally anymore. That way they got rid of the drags on the share price and from then on focused more on the profit drivers again. For the next few years, management expects annual growth of 3-5%. Annual profit, currently €1.4 billion, is also supposed to keep rising.

Can the dividend keep growing?
Short version: Yes! A dividend has been paid regularly since 1933. Since 1964 it has even been raised every year. In recent years, the increase was an impressive 11% per year. Considering that, the current dividend yield of 2.2% doesn't look bad at all. And there's still plenty of room to grow - the group is currently paying out only 56% of its profits to shareholders. Of course, ITW gets to bear the title of Dividend King.

Conclusion:
The conglomerate Illinois Tool Works is extremely diversified. In many industries, ITW's products have become indispensable by now. So it will surely be able to weather weaker economic phases too. In the long run, the stock will rise and keep dividend hunters happy for a long time.