3/10/25
Illinois Tool Works Inc. (ITW) is a well-established giant in the industrial sector, operating across multiple segments, from automotive to food equipment. With a history that spans over a century, ITW has built a strong reputation for profitability, innovation, and, most importantly for income-focused investors, consistent dividend payments.
For those looking for a stock that delivers reliable and growing dividends, ITW has long been a solid choice. But with its current valuation and some signs of slowing revenue growth, is it still a strong dividend investment today? Let’s take a deeper look.
🔹 Key Dividend Metrics
💰 Dividend Yield: 2.19% (Forward)
📈 5-Year Average Dividend Yield: 2.22%
💸 Annual Dividend Per Share: $6.00 (Forward)
🔄 Dividend Growth Streak: Over 50 years (Dividend King)
📊 Payout Ratio: 49.53% (Well-covered)
📅 Ex-Dividend Date: March 31, 2025
💵 Next Dividend Payment: April 10, 2025
Dividend Overview
ITW has been one of the most reliable dividend stocks in the industrial sector, with an uninterrupted streak of increases stretching over five decades. That kind of consistency doesn’t happen by accident. The company’s ability to generate strong free cash flow and maintain steady earnings growth has allowed it to continue rewarding shareholders year after year.
The current dividend yield of 2.19% is right in line with its five-year average, which suggests the stock is fairly valued based on historical yield patterns. While it may not offer the highest yield in the sector, ITW’s appeal lies in the strength of its dividend payments and the likelihood of continued increases in the future.
For long-term income investors, this is the kind of stock that provides stability, even if the yield isn’t exceptionally high.
Dividend Growth and Safety
Dividend growth is where ITW shines. The company has consistently raised its dividend, making it a top choice for those who want to see their income grow over time.
🔥 Key Dividend Growth Stats
- 5-Year Growth Rate: Around 7.5%
- 10-Year Growth Rate: About 12%
- Payout Ratio: 49.53% (Plenty of room for increases)
With a payout ratio below 50%, ITW has a healthy balance between returning cash to shareholders and reinvesting in the business. A key reason it has been able to sustain this growth is its ability to generate strong free cash flow—$2.7 billion in levered free cash flow last year alone.
The company’s business model is also highly resilient. ITW operates in multiple industrial segments, which means that when one part of the economy slows down, other areas can help offset any weakness. This is one of the reasons why the company has been able to keep increasing dividends through various economic cycles, including recessions.
Chart Analysis
Trend and Moving Averages
The chart shows Illinois Tool Works (ITW) displaying a mixed trend over the past several months. The 50-day moving average (light blue line) has been fluctuating, reflecting periods of both short-term bullish momentum and pullbacks. Meanwhile, the 200-day moving average (dark blue line) has maintained a more stable upward trajectory, though the stock did dip below it briefly before regaining strength.
A recent sharp upward move suggests renewed buying interest. The stock is attempting to reclaim higher levels after a period of consolidation, and the 50-day moving average appears to be converging with the 200-day moving average. If the shorter-term moving average crosses above the longer-term one, that could signal the start of a more sustained uptrend.
Volume and Market Participation
Volume has been relatively low and steady for much of the recent price action, but there are a few noticeable spikes. The latest surge in price appears to have been accompanied by a volume increase, which is a positive sign. This indicates that buyers are stepping in with conviction rather than the move happening on weak volume.
Periods of higher volume often correspond with stronger trends, so if volume remains elevated, the stock could have the momentum to break through key resistance levels. However, if volume drops back down, this rally might lose steam quickly.
Relative Strength Index (RSI) and Momentum
The Relative Strength Index (RSI) is currently at 41.69, which sits in the lower half of the range but is beginning to trend upward. This suggests that while the stock was previously in a weaker phase, momentum is building again.
An RSI below 30 would indicate oversold conditions, while above 70 would suggest overbought territory. With RSI still below 50 but rising, there is room for further upside without immediately triggering overbought signals. If RSI moves closer to 60 or 70, that would be a sign of stronger bullish momentum.
Recent Price Action
The latest five candles indicate stronger buying pressure after a period of choppiness. There was a noticeable gap up in price, signaling that traders and investors may be reacting to a catalyst, such as earnings results or broader market movements.
Looking at the wicks, recent candles show buyers defending dips, meaning demand is increasing at lower levels. The rejection of lower prices suggests that support is holding for now, which is an encouraging sign for bulls. However, the stock still has key resistance levels to break through before confirming a full recovery.
Analyst Ratings
🔼 Upgrades:
💠 Deutsche Bank: Upgraded ITW from sell to hold on February 19, 2025, raising the price target from $231 to $257. The firm cited valuation adjustments, suggesting that the stock’s previous decline had brought its price closer to intrinsic value.
💠 Jefferies Financial Group: In December 2024, Jefferies raised its price target from $255 to $290, maintaining a hold rating. Analysts expressed a more favorable view of ITW’s valuation at the time, believing the stock was better positioned for stability.
🔽 Downgrades:
🔻 Evercore ISI: Lowered its price target from $255 to $252 on February 19, 2025, while keeping an underperform rating. The downgrade was driven by concerns over slower sales growth, policy uncertainty, and sustained high interest rates, which could pressure earnings.
🔻 Barclays: Adjusted its price target from $262 to $260 on March 10, 2025, maintaining an equal weight rating. Analysts pointed to risks stemming from weaker sales due to macroeconomic challenges, ongoing high interest rates, and potential margin pressures from tariffs and declining lead times in ITW’s industrial markets.
📊 Consensus Price Target:
📍 The current consensus price target for ITW stands at $266.67, based on estimates from multiple analysts. This suggests a cautious stance on the stock’s near-term upside, as the price target hovers slightly below its recent trading levels.
These recent rating changes highlight both the positives of ITW’s valuation support and the headwinds it may face due to broader economic conditions.
Earnings Report Summary
Illinois Tool Works (ITW) wrapped up its latest earnings report with a mixed bag of results, showing solid profitability despite some challenges on the revenue side. The company continues to focus on efficiency and cost management, which helped boost margins, but overall sales were slightly down compared to last year.
Fourth Quarter 2024 Highlights
Revenue came in at $3.9 billion, slipping 1.3% year-over-year. The dip was largely due to ITW’s ongoing product line simplification efforts, which accounted for nearly a full percentage point of the decline. Without that adjustment, organic growth would have been slightly positive.
Despite the lower top-line number, ITW’s profitability improved. The operating margin hit a record 26.2%, climbing 140 basis points from the previous year. A big driver of this was the company’s focus on enterprise initiatives, which continue to improve efficiency and cut costs.
Earnings per share (EPS) grew 7% to $2.54, signaling a strong bottom-line performance even with softer revenue. Cash flow remained a bright spot, with free cash flow growing 10% to hit $1 billion, translating to an impressive 133% free cash flow conversion compared to net income.
Full Year 2024 Overview
For the entire year, ITW generated $15.9 billion in revenue, down 1.3% from the prior year. Organic sales were also slightly lower, reflecting some softness in demand across a few key segments. That said, the company more than made up for it on the margin side, hitting another record with an operating margin of 26.8%.
EPS for the year reached $11.71, a 20% jump over 2023. However, it’s worth noting that some one-time factors played a role in this boost. A change in inventory accounting added $0.30 per share, and the sale of ITW’s stake in Wilsonart contributed another $1.26 per share. Adjusting for these, the core EPS came in at $10.15, still showing strong earnings growth.
On the cash flow front, ITW brought in $3.3 billion in operating cash flow and $2.8 billion in free cash flow, converting 94% of adjusted net income into cash. The company returned $3.2 billion to shareholders through dividends and buybacks while also investing $800 million back into the business.
Outlook for 2025
Looking ahead, ITW is expecting organic revenue growth of 0% to 2% next year. Excluding the continued impact of product line simplification, growth would be slightly stronger at 1% to 3%. Margins are expected to keep improving, thanks to ongoing efficiency efforts.
The company’s earnings per share forecast for 2025 is between $10.15 and $10.55, factoring in a slight drag from foreign currency exchange.
Overall, while revenue growth has been a bit sluggish, ITW’s strong profitability and cash flow generation continue to make it a solid performer. The focus on efficiency and returning capital to shareholders should keep investors interested, even if sales remain muted in the short term.
Financial Health and Stability
ITW is a high-margin business, and that’s one of the main reasons why its dividend remains so safe.
✅ Operating Margin: 26.3% (Strong for an industrial company)
✅ Net Profit Margin: 21.94% (Consistently solid)
✅ Return on Equity (ROE): 110.21% (Boosted by share buybacks and strong profitability)
One area that investors should keep an eye on is ITW’s debt levels. The company has a Debt-to-Equity ratio of 243.53%, which is on the high side. While ITW’s strong cash flows can support this, high leverage does limit flexibility, particularly in a rising interest rate environment.
The current ratio of 1.36 shows that ITW has enough liquidity to manage short-term obligations, but its balance sheet isn’t as clean as some of its industrial peers. As long as cash flows remain strong, this shouldn’t be a problem, but it’s something dividend investors should monitor.
Valuation and Stock Performance
ITW isn’t exactly a bargain at current levels. The stock trades at 23.44 times trailing earnings and 25.84 times forward earnings, making it pricier than many of its industrial peers.
📊 Key Valuation Metrics
- Trailing P/E: 23.44
- Forward P/E: 25.84
- Price-to-Sales: 5.14
- Price-to-Book: 24.29
These numbers suggest ITW is trading at a premium, and its PEG ratio of 3.92 indicates that growth isn’t keeping pace with valuation.
Despite the rich valuation, ITW has delivered solid stock performance. Over the past year, shares have traded between $232.77 and $279.13, currently sitting at $267.67.
Looking at the 50-day moving average ($257.90) and 200-day moving average ($254.10), the stock is in an upward trend, though the recent dip of -2.48% suggests some short-term volatility. Investors may want to watch for a pullback before considering new positions.
Risks and Considerations
While ITW remains a strong dividend payer, there are a few risks that investors should be aware of.
📉 Revenue Growth Concerns: The company reported -1.3% year-over-year revenue growth, which raises questions about future earnings potential. A slowdown in the industrial sector could put pressure on revenue.
📊 High Valuation: With a high P/E and Price-to-Sales ratio, ITW isn’t a value play. If earnings growth slows, the stock could see some downside.
💰 High Debt Levels: The Debt-to-Equity ratio of 243.53% is something to monitor. Rising interest rates could increase borrowing costs, though ITW’s strong cash flow helps mitigate this risk.
🔄 Economic Sensitivity: As an industrial company, ITW’s earnings can be cyclical. While it has performed well through past downturns, any future economic slowdowns could impact margins and growth.
Final Thoughts
For investors who prioritize stability, income, and long-term dividend growth, ITW is one of the most dependable names in the industrial sector. It has a long track record of increasing dividends, strong profit margins, and a business model that has proven resilient through multiple economic cycles.
However, the current valuation is on the high side, and revenue growth has shown signs of slowing. While ITW remains a solid dividend stock, some investors may prefer to wait for a pullback before adding new shares.
At the end of the day, ITW is the kind of stock that dividend investors can rely on for consistent, growing income. It may not be the cheapest stock in the market, but for those looking for a reliable, long-term dividend payer, it remains one of the best options in the industrial space.
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