Dividend Watch: Textron Fails Dividend Test of Conglomerates (TXT, GE, UTX, MMM)

Textron Inc. (NYSE: TXT) is one of those companies that is categorized as a conglomerate by most financial analysis sector groupings.  It is not quite diversified enough by our count to be a true conglomerate as it is in aircraft, defense, industrial, and finance businesses with brands such as Bell Helicopter, Cessna Aircraft Company, Jacobsen, Kautex, Lycoming, E-Z-GO, Greenlee, and Textron Systems.  The company announced its dividend this morning that would remain at the same low payout rate of $0.02 per share per quarter. 

We took a look at the other “conglomerates” and it only reinforces our belief.  It is time to change. General Electric Co. (NYSE: GE) yields 2.8% now if its payout remains static, but that payout could actually be raised yet again in the next year.  United Technologies Corp. (NYSE: UTX) has a yield of about 2.2% today and 3M Co. (NYSE: MMM) pays closer to a 2.3% yield to its holders. 

Another thing that Textron has working against it is a market cap of about $8.2 billion.  That is just too small to be a true conglomerate, at least short of being perhaps a “General Eclectic” in it operational description.  Textron’s current dividend yield is only 0.3%.  If Textron wants to be thought of as a real conglomerate then its payout needs to come back in-line with history.

It was back in early 2009 at the peak of the panic that Textron was winding down finance exposure and it then decided to cut its quarterly common stock dividend for the first time ever as the recessionary woes forced the company into cash preservation mode.  The March 11, 2009 payout was a $0.02 Dividend against a December 10, 2008 payout of a $0.23 Dividend.  That $0.02 dividend has remained the same since, including the announcement this morning.  Sorry, but that time has come and gone, we are in a different world now.

The company’s reported earnings per share was $0.81 EPS in 2010, and Thomson Reuters has estimates of $1.13 EPS for 2011 and $1.83 EPS for 2012.  A payout of $0.02 comes to only $0.08 per year.  The recession is over, even if Textron has a rougher road ahead being tied closer to aerospace and defense orders.

Textron said that this $0.02 dividend will be paid on July 1, 2011, to holders of record at the close of business on June 10, 2011.  Really, who cares?  Shares are down 0.4% at $25.68 versus a 52-week trading range of $15.88 to $28.87.  This was a $70 stock back at the end of 2007.  If Textron is a real conglomerate, it needs to start acting like one with a real dividend.

JON C. OGG