Saturday, 26 January 2013

A Look at United Technologies


In 2012/2013, I added a fair bit of Industrials to my portfolio, which, at the time, was over weight consumer staples. For the right price, I would very much like to buy some UTX. There was an opportunity in November 2012 when it dipped below $75, but it just didn’t go low enough.

Average Dividend Yield Analysis*

UTX-N
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2000
$39.88
$23.25
$0.10
$0.10
$0.10
$0.11
$0.41
1.76%
1.03%
2001
$43.75
$20.05
$0.11
$0.11
$0.11
$0.11
$0.44
2.19%
1.01%
2002
$38.88
$24.42
$0.12
$0.12
$0.12
$0.12
$0.48
1.97%
1.23%
2003
$48.38
$26.76
$0.12
$0.14
$0.14
$0.18
$0.58
2.17%
1.20%
2004
$53.14
$40.34
$0.18
$0.18
$0.18
$0.18
$0.72
1.78%
1.35%
2005
$58.89
$48.43
$0.22
$0.22
$0.22
$0.22
$0.88
1.82%
1.49%
2006
$67.47
$54.20
$0.22
$0.27
$0.27
$0.27
$1.03
1.90%
1.53%
2007
$82.50
$61.85
$0.27
$0.27
$0.32
$0.32
$1.18
1.91%
1.43%
2008
$77.14
$41.76
$0.32
$0.32
$0.32
$0.385
$1.35
3.22%
1.74%
2009
$70.89
$37.40
$0.385
$0.385
$0.385
$0.385
$1.54
4.12%
2.17%
2010
$79.70
$62.88
$0.425
$0.425
$0.425
$0.425
$1.70
2.70%
2.13%
2011
$91.83
$66.87
$0.425
$0.48
$0.48
$0.48
$1.87
2.79%
2.03%
2012
$87.50
$70.71
$0.48
$0.48
$0.535
$0.535
$2.03
2.87%
2.32%
2013


$0.535
$0.535
$0.535
$0.535
$2.14


Stock prices and dividends are per calendar year.
13y ave
2.40%
1.59%
Dividends are recorded in the quarter they were paid.
5y ave
3.14%
2.08%







3y ave
2.79%
2.16%







5y
$68.14
$102.89







3y
$76.76
$99.01






Super Cheap
$51.97


The table shows the 3 year average dividend yield to be 2.79% ((2.70% + 2.79% + 2.87%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $2.14, one would have to pay $76.76 for a 2.79% yield.

Buying the stock at its low in 2009 would have earned you an initial yield of 4.12%. Using the current annual dividend, that corresponds to a stock price of $51.97 today (see “super cheap” price in the table above).

Graham Price

UTX’s 2010, 2011 and 2012 EPS were $4.74, $5.49 and $5.35. 3Y Ave EPS = $5.19.
UTX’s BV is $28.82.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $58.03

Cyclically Adjusted Price to Earnings Ratio

UTX’s 10Y Ave EPS = $4.08
CAPE = Stock Price / 10Y Ave EPS = $89.79 / $4.08 = 22
A CAPE below 20 is good.

Conclusion

UTX increased EPS from $1.92 in 2001 to $5.35 in 2012. That’s an increase of 2.78 times over 11 years. Not stellar, but not bad either.

Based on my three metrics, the stock price of UTX is just too expensive.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.


4 comments:

  1. I regard UTX as fully valued after its strong run-up over the past 3 months. I was fortunate to start a position in November 2011 near $71, giving me a 3.0% yield on cost and 25% unrealized capital gain. I remember thinking about adding to my position in mid-2012 when its price dipped below $73 a few times -- that would have been a good time to buy.

    ReplyDelete
    Replies
    1. DGM, I was thinking $70 would be a good entry point. Glad to see others think like me. Anyway, if it ain't UTX, something else will certainly draw my attention.

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  2. I bought last year around $76 (you guys have more stringent entry points than me!!).

    I like their diversity - they own Pratt & Whitney and Otis, and they bought Goodrich in 2012. If China regains some momentum with their infrastructure build (and it looks like that might be happening) it should help UTX, especially the Otis division.

    ReplyDelete
    Replies
    1. DoD, I've missed several opportunities because of my stringent entry points. My wife wanted me to buy MCD at $83 and change in November. I said it wasn't cheap enough. It's up 12% since. Others I missed out on over the years include POW-T @ $14, BMO-T @ $30 and LOW-N @ $22. But I don't want to stray from my strategy. So far, it's worked out pretty good - except for TEVA. I have a love hate relationship with TEVA. Last year, I wanted to sell. This week, I was thinking of buying more. Their 4th quarter results come out Feb 7, along with a huge dividend increase - I hope.

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