Otis Vs. Carrier: Which Spin-Off To Buy?

Recently, United Technologies (UTX) broke up into three independent public companies. First, it spun off its two non-aerospace divisions: Otis Worldwide Corp (OTIS) and Carrier Corporation (CARR). Then, it merged the remaining aerospace company with Raytheon (RTX) to create an aerospace/defense giant.

Thanks to United Technologies’ dividend history, Otis, Carrier, and Raytheon are all considered Dividend Aristocrats. Today, we will provide an overview of both dividend paying spin-offs, and share which stock is more attractive today. Let’s start with Otis.

Otis Business Overview

Otis is the world’s largest elevator and escalator manufacturing, installation, and service company. Otis now designs, manufactures, sells, and installs a wide range of passenger and freight elevators, as well as escalators and moving walkways.

In addition to new equipment, Otis provides modernization products to upgrade elevators and escalators, as well as maintenance and repair services for both its products and those of other manufacturers. Otis serves customers in the commercial, residential, and infrastructure property sectors around the world.

This Is Otis

Otis revenue is divided 43% / 57% between their two segments: New Equipment and Service. However, 80% of profit comes from Service. As a result, Otis’ business is relatively defensive because elevators and escalators need to be serviced in both good times and in bad. For example, during the Great Financial Crisis, Otis experienced a 21% sales decline, yet operating income only fell by 1%.

Otis Strategy

Over the last ten years, revenue has grown modestly, but operating margins have declined.

Otis Long-Term Financial Performance

Recently, operating margins have stabilized and remain ~100bps higher than peers. Management expects modest margin expansion going forward. On the revenue front, Otis’ primary goal is to accelerate growth through four primary initiatives.

The first initiative is to sustain new equipment sales growth. Since 2014, Otis has increased its number of patents by over 200%. It has also grown market share by 1.5%. Both of these show evidence of the commitment to new equipment growth.

The second strategic imperative is to accelerate service portfolio growth. Otis views itself as essentially a service company. As discussed above, revenue is more or less equally divided between equipment sales and services, but almost 80% of operating profits come from service. The life cycle of an elevator is about 25 years. Profit from service is about 2.5 times the profit from the initial sale.

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This article is written by Rich Howe, CFA, who monitors the stock spin-off market at 


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