Using The Value Line Page: Playing It Safe With United Technologies
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J. Susan Ferrara
An investor seeking to add to his portfolio a "safe" stock that generates steady income, with possibly some long-term growth potential need not look very far. In fact, he/she need to look no further than the Dow 30. The index is home to some of the most stable, dividend-paying equities around and offers a plethora of viable choices for those with such an investment objective. In this review, we will focus on United Technologies (UTX - Free United Technologies Stock Report) and discuss what makes it a fairly attractive selection among its blue-chip brethren.
Founded in 1929 as an aerospace conglomerate originally known as Untied Aircraft & Transport, UTX covered virtually all aspects of aviation. Its operations included aircraft engine and airframe manufacturing, as well as the airline business, where, in that capacity, the company served both the civilian and military markets. Over the next few years, United Technologies completed a string of acquisitions of aviation manufacturers and small airlines, but was later required by the U.S. government to split and reorganize its operations under new anti-competitive laws.
The company would go on to focus on its manufacturing functions in subsequent years, producing aircraft engines, helicopters, and propellers that were largely used by the U.S. military market. It wasn't until the 1970s when the company would embark on the next major phase of its business and change its name to the present day moniker. As competition for more advanced technology grew, UTX began diversifying in areas beyond aerospace in the decades that followed, morphing into the industrial heavyweight it is known as today. Indeed, as described in the Blurb (found in the center of the Value Line page), the company now operates in five segments: commercial and military aircraft engines; elevators and escalators; heating, ventilation, and air-conditioning equipment; helicopters; and aerospace and industrial products. (For more on UTX's background, read our Dow 30 Profile report.)
Aside from its extensive past, UTX has more to offer in terms of its stock. Consider its Safety rank, located in the Ranks box in the upper left-hand corner of the Value Line page. The issue sports our highest Safety rank of 1 (out of a range of 5), indicating that it has considerably less risk, and is thus, much safer than the average equity under Value Line's review.
United Technologies scores very well, too, as far as other risk measures. This is evident in the Ratings section at the bottom of the page. Note that the company gets a top-notch mark of A++ for Financial Strength, reflecting its strong balance sheet. In fact, as indicated in the Capital Structure box, the debt level constitutes a reasonable 40% of total capital. Meanwhile, the stock scores highly for Price Stability and Price Growth Persistence, as well.
Glancing over at the Top Label, we note that the blue chip features an income component, as well. While not earthshattering, the dividend yield of 2.1% is decent and roughly on par with the Value Line median. As displayed in the Statistical Array, the dividend is well-covered by earnings, with the payout ratio in the mid-30% range. And based on analyst Erik Manning's projections, dividend increases should continue at a steady, though moderate, pace three to five years out. That's shown in the Annual Rates box.
And like many of its peers, this Dow member offers modest long-term price-appreciation potential, as the Projections part of the page illustrates. Yet, if dividend increases are factored in, total return potential is not bad, on a risk-adjusted basis. Indeed, earnings and dividends should rise nicely in the years ahead. Urbanization in India and China, which the analyst points out in the Commentary, ought to be an avenue of growth for the industrial giant.
All in all, while UTX stock does not stand out for year-ahead performance, as suggested by the Below-Average Timeliness rank of 4 (Ranks box), its other attributes should interest conservative, income-minded individuals. In fact, given its favorable risk profile, a "safe" or "boring" issue like this one could add a great deal of stability to any account. As Mr. Manning concludes "this selection is a strong play for buy-and-hold investors".
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
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