Investment season does continue and at the moment I am purely sticking to my 5 stocks to add list. Before hitting the investment button I want to have a closer look at Illinois Tool Work to find out if it is worth of an investment at the current valuation or if it smarter to wait until it might be a bit cheaper.

Overview

Illinois Tool Works Inc. (ITW) is industrial products and equipment maker with operations in 57 countries worldwide. The company’s segments include Transportation, Industrial Packaging, Power Systems & Electronics, Food Equipment, Construction Products, Polymers & Fluids, Decorative Surfaces, and Other Products. Illinois Tool Works was founded in 1912 and is based in Glenview, Illinois. Illinois Tool Works is largely affected by raw material prices, as well as its ability to introduce new products. Illinois Tool Works has been increasing its dividend annually since 1964. The company is known as a dividend aristocrat, as it has increased its dividend for more than 25 years consecutively. Illinois Tool Works pays its dividend quarterly.

Dividend Data

ITW has increased their dividends for 55 years. This is quite an impressive streak of dividend increases which makes the stock one of the best dividend paying companies. The next impressive is also the nice increases in the past, it just shows the company is still able to deliver nice dividend increases, although it has been increasing their dividends for a long time already.

Dividend: Currently the company pays a yearly dividend of 4.00 USD, which equals a yield of 3.00%. The latest dividend increase was at 11.1%, which is quite above my goal of having a yearly increase of 7.5%.

Payout Ratio: The current payout ratio is at 52.4%, which is on very healthy level given the latest increase and the long history of dividend increases.

Stock Price

The share price of ITW is down by almost 26% on year to date basis. This fact makes stock look quite cheap at the moment with a price of 133.25 USD.

Valuation

Price/Earning: The current P/E ratio is currently at 23.97, the 5 year average is at 22.51. So based on the P/E the company seems to be on the average price level of the last 5 years, which is not super cheap but ok for now.

Price/Book: Similar to the P/E ratio, the price/book ratio is also above the 5 year average. The current P/B ratio is at 12.48 compared to its 5 year average of 8.16.

Free cashflow: The company has enough free cashflow to cover the dividend and to increase the dividend in the upcoming years. So the company should definitely not have any cashflow problems in the future.

Debt/Equity: The current debt/equity ratio is at 1.71 which is ok but also not so great. On the hand, ITW is now slowly reducing their debt level, which is a good sign that Management does take care of it and does not want to have a debt level.

Growth: For 2018 the median EPS expectations are at 7.58 USD per share and for 2019 at 8.08 USD per share. In the upcoming 5 years analysts expect an average yearly growth of 9.9%.

The Finbox Fair Value is at 98.23 USD, which means a downside of 26.3%

Conclusion

So having a look at the valuation, the stock is not really a buy at the moment. But for me, ITW will be one of my core holdings in the future I want to have at least 30 shares until the end of the year, which requires an investment of about 4 000 USD. So my plan with this stock is to add to divide my investment in 3 parts. In the next few weeks, I probably will 10 shares, and then again 10 shares until I reached my goal to have 30 shares.

So why exactly ITW?

Well, first of all, it has a very stable business model, secondly, my largest holding are at the moment high yield stocks like MO and AT&T both with not such a good like ITW has. So the plan is to stabilize my dividend portfolio this year and ITW is one piece of it. By purchasing 30 shares it will add another 120 USD to my forward full-year dividend income.