United Technologies Chases GE With Big Dividend Hike

Industrials

Published: October 9, 2013 3:10 pm

Conglomerates are supposed to be stable earnings due to diversified sources of income. That implies that they are supposed to have safe and growing dividends as well. Now we have news out that United Technologies Corp. (NYSE: UTX) has approved a ten percent increase in its fourth quarter dividend to $0.589 per common share.

When we take a look at what this means, it translates to a per common share payout of $2.356 on annualized basis. The prior $2.12 per year on annualized basis was a 2.08% dividend yield. UTX’s new dividend yield will be closer to 2.3%. This is not a stellar dividend by Dow Jones Industrial Average dividend standards. It comes to about 38% of this year’s expected normalized income and is about 34% of next year’s normalized expected income.

The real issue is how this compares to General Electric Co. (NYSE: GE) since that is our target reference here. Keep in mind the General Electric is actually the king of conglomerates when it comes to a dividend yield. UTX’s new 2.3% dividend yield is still far short of GE’s dividend yield of about 3.2%.

The difference here is that UTX has a far lower payout ratio of normalized (non-GAAP) earnings. GE pays out about 46% of this year’s expected earnings on a comparable basis. We would also warn readers that GE’s dividend is likely going to be hiked in about the next sixty days or so.

United Tech was not listed as one of the major dividend hikes to expect before year end and GE was, but United probably should have been included. GE was counted on that list, and GE was also listed as one of Warren Buffett’s highest yield dividends.

United Tech trades around $103 with a 52-week range of $74.44 to $112.46, and the consensus analyst target price of $116.65 implies that there is some 13% upside over the next year. GE trades at $23.65 against a 52-week range of $19.87 to $24.95, and its consensus analyst target of $26.43 implies upside of almost 12% over the coming year.

GE is worth some $240 billion in market capitalization versus about $95 billion for UTX. It seems as though United Tech may want to catch up to GE’s dividend so it can better lure conglomerate investors. Unfortunately United still has a long way to go before it is even in the same ballpark as GE when it comes to the dividend.

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