What ITW actually does
Illinois Tool Works makes a wide range of engineered industrial products: auto parts and fasteners, food equipment, welding gear, test equipment, construction products, polymers and specialty items. It runs dozens of small, decentralized businesses rather than one large one.
How the business makes money
ITW sells mostly to other businesses. Its management system, called 80/20, focuses effort on the 20% of customers and products that generate 80% of profit and simplifies the rest. This has helped it earn some of the highest margins among industrial companies.
The dividend story
ITW is a Dividend Aristocrat. It has raised its dividend every year for around five decades and pays it quarterly. The company aims to pay out a large share of profit as dividends, while buying back shares as well.
What to keep an eye on
- Economic cycles. Industrial demand slows in recessions.
- Auto and housing. Both markets are important end-customers.
- Growth. Mature businesses grow slowly, so margin gains matter.
- Acquisitions. It prefers organic growth, so large deals are rare.
Quick take
ITW is a high-margin industrial with a long dividend-growth record, steady and unspectacular.