Another “Fool Revisited” piece, another sector article, though technically I milked the defense sector for two articles, the other which you’ll see on Thursday. (Spoiler alert: it’s about dividends among defense contractors). This article discusses the non-defense part of United Technologies (NYSE: UTX), a Dow component and massive conglomerate with multiple subsidiaries.
I narrowed in on Otis Elevators for a couple of reasons. First, I had seen the name Otis on a lot of elevators at the time, and when learning about United Technologies’ other businesses, it stood out for that reason. I also knew of the company because I once lived across the street from an elevator repairman that worked for Otis, so it was a company that I knew about indirectly as well, though I can’t remember if this salient fact had anything to do with picking Otis out from all of United’s other non-defense subsidiaries.
The clever wordplay in the title probably didn’t drive traffic alone, so here’s a tweet I sent out about the article, which may have actually been published on the weekend:
Per the chart below, United Technologies barely lags the S&P 500 since publication. Unlike some of the others in its sector – including a few we’ll see on Thursday in my other defense contractor piece – United Technologies isn’t typically a “prime” contractor when it comes to defense contracts. Sure, they build some components for various systems out there, but they aren’t leading the way like Boeing or Lockheed Martin might. This could help explain why their performance has lagged other defense companies over the past six years. Using the compound annual growth rate (CAGR) and total growth, an investor would have been better off investing in an S&P 500 index fund than choosing United Technologies from article publication (October 1, 2011) through January 26, 2018, though it is pretty close:
|Stock||Start Price||End Price||CAGR||Total Growth||Value of $10,000|
Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits
My article touted the dividend yield of United Technologies versus some of its non-defense dependent peers, and it has failed to maintain the same yield over the past six years. Part of this is the growth of the underlying stock; the dividend per share has grown over 45% during the same time period ($0.48 per share to $0.70 per share). It is still among the top yielding stocks in its industry, however, and also only pays out 40% of earnings as dividends, so there may be room for further growth if you are looking for dividends. Nevertheless, I don’t think it makes a compelling investment choice right now.
Until next time…
Disclaimer: I do not personally own shares of the companies mentioned here, and I have no plans to purchase shares of any company mentioned within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.