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United Technologies (UTX) Hikes Quarterly Dividend by 6%


Industrial goods manufacturer United Technologies Corporation UTX recently announced a 6.1% year-over-year hike in its quarterly dividend to 70 cents per share or $2.80 on an annualized basis. The increased dividend will be paid on Sep 10 to shareholders on record as of Aug 18.

Based on the closing price of $120.01 on Jun 14, the proposed dividend affirms a yield of 2.3%. A steady dividend payout is part of the long-term strategy of United Technologies to provide attractive risk-adjusted returns to its stockholders. In addition, healthy dividend hikes at periodic intervals have been one of its high points.

United Technologies continues to maintain a strong cash flow position through a disciplined capital deployment strategy. As of Mar 31, 2017, cash and cash equivalents were $7,156 million. The company maintained its debt-to-capital ratio at 46%. Cash flow from operations was $993 million compared with $798 in the year-ago period, while capital expenditures were $325 million. Free cash flow for the quarter came in at $668 million.

The cash flow allows management the opportunity to invest in product innovations, acquisitions and business development. The company continues to invest in innovative products through higher engineering spend, delivering value to its customers and securing orders that will drive top-line growth in the future. At the same time, a healthy cash flow enables United Technologies to reward the shareholders with a risk-adjusted return through dividend increases and share repurchases.

The company has outperformed the Diversified Operations industry with an average year-to-date return of 9.5% compared with a paltry 3.1% gain for the latter. In order to further improve its operations, United Technologies has also revamped its aerospace unit. This included an overhaul of its organizational structure in the aerospace business along with some key changes in the leadership positions within it. United Technologies anticipates that the streamlined organizational set-up would enable it to better serve its customers.

Incorporating its improved expectations for organic sales growth in the near future, United Technologies affirmed its guidance for 2017. The company expects adjusted earnings in the range of $6.30 to $6.60 per share on revenues of $57.5 billion to $59 billion. The company’s acquisition pool is expected to be within $1 billion to $2 billion, while free cash flow is expected in the range of 90–100% of net income. It also plans to repurchase shares worth $3.5 billion in 2017.

We remain impressed with the inherent growth potential of this Zacks Rank #2 (Buy) stock. Some other stocks in the industry worth considering include Crane Co. CR, Bunzl plc BZLFY and Federal Signal Corporation FSS, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Crane has a long-term earnings growth expectation of 10.1%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 8.4%.

Bunzl has a long-term earnings growth expectation of 3.2%.

Federal Signal surpassed estimates twice in the trailing four quarters with an average positive earnings surprise of 3.1%.

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