Dividend Increase | Illinois Tool Works $ITW #Dividend

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Illinois Tool Works for the dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On August 5th the Board of Directors at Illinois Tool Works (ITW) approved an increase in the quarterly dividend payment.  The dividend was increased from $1.22 to $1.31 which is a solid 7.4% increase.  Illinois Tool Works is a Dividend King with 60 consecutive years of dividend growth.  Shares currently yield 2.51% based on the new annualized payout.

The new dividend will be payable October 14th to shareholders of record as of September 30th.

Since I own 12.495 shares of ITW in my FI Portfolio, this raise increased my forward 12-month dividends by $4.50.  This is the 1st raise I've received from ITW since initiating a position in June 2022.

A full screen version of this chart can be found here.

The length of ITW's dividend growth streak is truly impressive as very few companies last 60 years, let alone are able to thrive and pay higher dividends every year for that time.  ITW's dividend growth fluctuates as expected for a more cyclical business; however, over long time frames dividend growth has been excellent. 

Since 1993, ITW's year over year dividend growth has ranged from 2.4% to 29.1% with an average of 13.8% and a median of 12.9%.

There's been 25 rolling 5-year periods over that time with annualized dividend growth spanning 6.3% to 19.9% with an average of 14.1% and a median of 15.1%.

There's also been 20 rolling 10-year periods with ITW's annualized dividend growth ranging between 11.3% to 16.3% with an average of 13.4% and a median of 13.1%.

The 1-, 3-, 5-, and 10-year rolling dividend growth rates for Illinois Tool Works since 1993 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5-year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Illinois Tool Works' 5-year average forward dividend yield is 2.37% which corresponds to a share price of $221 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $201 - $245 and suggests that shares are trading on the lower end of fair value.

Wrap Up

This raise increased my forward dividends by $4.50 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.58% this raise is like I invested an extra $174 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way. 

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

This is the 38th dividend increase I've received from the companies in my FI Portfolio increasing my forward 12-month dividends by $406.29 combined.

My FI Portfolio's forward-12 month dividends are $10,576.13  Including my FolioFirst portfolio's forward dividends of $227.84 brings my total taxable accounts dividends to $10,803.97.  My Roth IRA's forward 12-month dividends are $1,045.61.  My Rollover IRA's forward dividends are $4,519.33.  Across all accounts I can expect to receive $16,368.91 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Illinois Tool Works' can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of ITW?  Do you think they can maintain their impressive dividend growth rate?

Please share your thoughts below.