Earn a Growing Dividend from UTX Stock
Can United Technologies Corporation (NYSE:UTX) stock satisfy the needs of dividend investors?
One way to receive a return on the capital that you have invested into a company is by collecting a dividend. However, not all dividend-paying companies are the same, because there is always a possibly of the dividend being cut if the business can not sustain its payout. The company could also have a balance sheet which is financially leveraged, due to a large debt balance.
These are important things to consider because the expectation from a dividend-paying company is a consistent payment from earnings.
This is why you should spend some extra time doing your due diligence before a capital investment is made into a company, and that holds true for UTX stock as well. Let me explain further.
Dividend Outlook
United Technologies has been paying a quarterly dividend since 1980, never missing a single payment. The dividend has also been growing following its annual review each Feburary.
UTX stock’s payout ratio, a metric that provides insight on the company’s ability to increase the dividend, is a very modest 31%. That means almost a third of earnings are being paid out to shareholders via the dividend. Also note that this is right around the 10-year average of the stock’s payout ratio, which could be taken to mean that the company wants to keep the ratio around this percentage.
UTX stock has a dividend yield of 2.44%, based on the current market price of $108.33.
Debt Outlook
UTX stock does possess debt, but according to the the debt-to-capital ratio, there is no cause for concern.
When this ratio is calculated and the ratio comes in at 50% or above, it means that there is too much debt on the company’s balance sheet. It also means this debt is being used to grow the business, which could be risky for shareholders since if the investment doesn’t pan out, that large debt remains. A ratio below 50% means that it is equities being used as opposed to debt.
The industry average, which includes United Technologies, has a debt-to-capital ratio of 60%, signaling danger. However, on an individual basis, UTX stock has a ratio of 44%. This ratio means that the company is not financially leveraged–a favorable reason to consider owning the stock.
Valuation
What makes UTX stock more even appealing is its current trading valuation in comparison to its industry peers. The industry average price-to-book ratio, which compares the current market trading price to the historic value of the shares, is currently 34.4 times. The closer the ratio is to 1.0, the more value the company holds from a investor’s point of view (in comparison to the view of the market).
United Technologies, on the other hand, has a lower personal ratio of 3.3 times. Therefore, UTX stock is only trading at a tenth of the value of the whole industry, further showcasing its value as an investment opportunity.
Final Thoughts on UTX Stock
All this being said, UTX stock should be considered by dividend investors. Based on the company’s history and financial statements, it seems that management is keeping tabs on all aspects of the company.
There are also possibilities of seeing more dividend hikes, which means more money into investors’ pockets. If United Technologies can deliver dividend increases in the future, the average yield on cost will only increase.