United Tech: What Liquidity Crisis?

By Rich Smith (TMFDitty)
October 9, 2008 | Comments (1)

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So if I understand correctly, there's a liquidity crisis of some sort going on out there.

Apparently, by the time the dust settles, Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), and Wells Fargo (NYSE: WFC) will be the only banks left standing. Commercial paper is worth less than toilet paper. Nobody can get loans to keep their businesses running.

Well, excuse United Technologies (NYSE: UTX) for daring to disagree, but these folks apparently didn't get the memo. According to CEO Louis Chenevert, "UTC's liquidity and free cash flow remain strong."

How strong?
Far from joining the Great American Cash Scrabble, United Tech is actually giving greenbacks away. On Wednesday, it increased its dividend -- and not by some incremental, make-a-show-of-confidence, de minimis amount, either, but by a whopping 20%. At $0.385 per share, per quarter, United Tech stock now pays out a healthy 2.6% yield. And even though that still falls short of the income you can generate from owning Textron (NYSE: TXT) or General Electric (NYSE: GE) stock, it's not too shabby in a world that appears to be melting down as we speak.

Nor is United Tech itself
Business is going great, according to the CEO. The dividend looks healthy, according to the press release. And the valuation? That's pretty decent, too.

Based on the most recent financials, which are due to be updated next week, the company generated $4.5 billion in free cash flows over the past four reported quarters. That works out to a price-to-free cash flow ratio of less than 11, which seems entirely reasonable in light of analysts' predicted 11% long-term growth.

Foolish takeaway
United Tech doesn't boast the biggest dividend on the planet. It's not the cheapest stock I've ever seen. But it's an excellent business that spins off a ton of cash -- more than it reports as net income, by the way. And it's selling for a price that's more than fair. I wouldn't hesitate to own it today.

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  • Report this Comment On October 09, 2008, at 11:43 AM, mytown wrote:

    This looks real good NOW!

    "The Company currently has in excess of $250 million of cash liquidity."

    http://biz.yahoo.com/prnews/081008/nyw130n.html?.v=1

    NEW YORK, Oct. 8 /PRNewswire-FirstCall/ -- NorthStar Realty Finance Corp. (NYSE: NRF - News) today announced that its Board of Directors has declared a cash dividend of $0.36 per share of common stock, payable with respect to the quarter ended September 30, 2008. The dividend is expected to be paid on November 14, 2008 to shareholders of record as of the close of business on November 4, 2008. The Company's common shares will begin trading ex-dividend on October 31, 2008.

    Based on the closing price of $4.15 per share on October 8, 2008, this distribution represents an annualized dividend yield of approximately 34.7%.

    Additionally, the Company's Board of Directors has authorized a share repurchase program of up to 10,000,000 shares of the Company's outstanding common stock, or approximately 16% of the Company's outstanding common stock. The Company currently has in excess of $250 million of cash liquidity.

    Stock repurchases under this program will be made from time to time through the open market or in privately negotiated transactions. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities.

    Peace,

    Dan

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