Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Illinois Tool Works Inc. (ITW): A Dividend Aristocrat With Double-Digit Dividend Growth

Illinois Tool Works Inc. (NYSE:ITW) is one of the strongest, most diversified industrial conglomerates a dividend growth investor can find. While the stock only yields 2.4% today, the company raised its dividend by 13% last quarter and continued double-digit dividend growth isn’t out of the question.

ITW Dividend

During the third quarter, ITW registered a decline in sentiment among the funds tracked by Insider Monkey. A total of 31 funds reported stakes with a total value of $934.51 million at the end of September, versus 38 investors holding $1.05 billion worth of shares a quarter earlier. Ken Griffin’s Citadel Investments Group and Ric Dillon’s Diamond Hill Capital held around 3.83 million shares and 2.06 million shares, respectively, at the end of the third quarter.

ITW possesses many of the characteristics we look for when accumulating stocks in our Top 20 Dividend Stocks portfolio. Let’s take a closer look at the business.

Business Overview

ITW was founded over 100 years ago and has grown into an extremely diversified manufacturer of specialized industrial and consumer equipment and consumables with a presence in many different end markets – automotive, construction, manufacturing, food & beverage, and more. The company estimates that around 60% of revenue comes from consumer-facing businesses with the remaining 40% coming from industrial-facing businesses.

ITW consists of hundreds of businesses it has acquired over the years. It runs a unique decentralized operating structure that empowers acquired businesses to maintain most of their culture and operations while taking advantage of ITW’s resources to better serve their customers’ needs. The company’s business model also emphasizes the 80/20 rule, encouraging each business to focus on the 20% of its customers that generate 80% of its revenues and structure its operations around growing these key relationships.

By geography, ITW generates 50% of its sales in North America, 30% in Europe, the Middle East and Africa, and 20% in Asia. The company does business in over 50 countries, but its emerging market exposure is fairly limited.


Automotive OEM (19% of sales, 24.5% margin): produces plastic and metal components, fasteners, and assemblies primarily for automotive original equipment manufacturers.

Test & Measurement (14% of sales, 16% margin): sells equipment, consumables, and related software for testing and measurement of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics.

Food Equipment (16% of sales, 24% margin): produces commercial food equipment and related services, including warewashing equipment, cooking equipment (e.g. ovens, broilers), refrigeration equipment, and more. Customers include restaurants and food retail markets.

Polymers & Fluids (13% of sales, 20% margin): sells adhesives, sealants, lubrication, fluids, and polymers for auto aftermarket maintenance and appearance.

Welding (12% of sales, 25.5% margin): sells welding equipment, consumables, and accessories for a wide array of industrial and commercial applications.

Construction Products (12% of sales, 20% margin): produces construction fastening systems and truss products used primarily in construction markets.

Specialty Products (14% of sales, 23% margin): the businesses in this segment produce beverage packaging equipment and consumables, product coding and marking equipment, and appliance components and fasteners.

Business Analysis

Much of ITW’s historical growth was fueled by acquisitions into high-margin industrial and consumer niches. The company runs a decentralized organizational structure, which allows acquired companies to retain most of their unique culture and market knowledge to continue growing their business.

For many decades, this was a very successful strategy. However, ITW eventually grew to more than 800 regional business divisions, which became increasingly difficult to oversee and keep efficient. Over the last three years, ITW has embarked on a strategy to simplify its operations (transitioning from 800+ regional to 84 global divisions), take better advantage of its size and scale, and drive accelerated organic growth globally.

Follow Illinois Tool Works Inc (NYSE:ITW)
Trade (NYSE:ITW) Now!

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.