Can ITW Use Its Free Cash Flow to Bring Down Its Debt Level?



Illinois Tool Works’ free cash flow

In the previous article, we looked at Illinois Tool Works’ (ITW) debt position and its debt-to-equity ratio. In this article, we’ll see whether ITW’s free cash flow can help to reduce its debt.

ITW has been generating positive free cash flow. From 2012 to 2017, ITW generated an average free cash flow of $1.87 billion, and for 2018, its free cash flow is projected to be $2.52 billion, representing a compound annual growth rate of 8.3%.

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ITW’s free cash flow is mainly used to pay cash dividends to its shareholders. In the past six years, ITW has used an average of 42% of its free cash flow to pay dividends. However, ITW has further invested its free cash flow in share repurchases to accommodate dividend growth and boost its EPS. The move indicates that at this point, ITW does not see debt retirement as its top priority.

Peer comparison

ITW’s free cash flow grew at an average of 4.4% from 2012 to 2017. In contrast, Honeywell (HON), Stanley Black & Decker (SWK), and Boeing (BA) have average free cash flow growth of 16.4%, 11.3%, and 38.4%, respectively. Although ITW’s free cash flow growth is lower than those of its peers, it has remained consistent.

To hold ITW indirectly, you may be interested in the Invesco Dynamic Large Cap Value ETF (PWV), which holds 3.3% in ITW as of November 13.


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