DuPont vs. United Technologies: Which Dow Stock's Dividend Dominates?

Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking: Dividend payments have made up about 40% of the market's average annual return from 1936 to the present day. But few of us can invest in every single dividend-paying stock on the market, and even if we could, we might find better gains by being selective. That's why we'll be pitting two of the Dow Jones Industrial Average's (DJINDICES: ^DJI  ) dividend payers against each other today to find out which Dow stock is the true dividend champion. Let's take a closer look at our two contenders now.

Tale of the tape
DuPont (NYSE: DD  ) has been part of the Dow for 77 consecutive years, which makes it one of the longest-tenured components on the index. It's also one of the oldest companies in the United States, with roots that go back to 1802. DuPont is still headquartered in Wilmington, Del., after all these years, and it's now the second-largest chemical company by revenue (and the largest by net income) in the U.S. DuPont makes a wide range of products that have reached consumer markets over the years, and it's likely that at least a few things in your house have some origins in a DuPont plant.

United Technologies (NYSE: UTX  ) has been part of the Dow for 74 consecutive years. It originated as United Aircraft following the breakup of a 1930s aviation monopoly and has been a government contractor since its earliest days. Today, the Connecticut-based conglomerate is considerably more diversified: It owns the world's largest elevator-manufacturer and has significant other building-systems operations as well. It's not the largest defense contractor for the U.S. government (last year it ranked sixth by profit), but United Technologies relies less on Uncle Sam than many of its peers.

Statistic DuPont United Technologies
Market cap $48.3 billion $83.6 billion
P/E ratio 10.6 13.5
TTM profit margin 13% 10.2%
TTM free-cash-clow margin* 6.3% 4.8%
Five-year total return 40.7% 49.8%

Source: Morningstar and YCharts. TTM = Trailing-12-month.
*Free-cash-flow margin is free cash flow divided by revenue for the trailing 12 months.

United Technologies has size and growth on its side, but DuPont has better margins. It looks like this might be a close battle.

Round one: endurance
DuPont has been paying dividends since 1904, according to its investor relations website. That puts United Technologies at an immediate disadvantage, as the company has only existed since the 1930s. No matter how far back we go, United Tech just can't beat DuPont here.

Winner: DuPont, 1-0

Round two: stability
Paying dividends is well and good, but how long have our two companies been increasing their dividends? The same dividend payout year after year can quickly fall behind a rising market, and there's no better sign of a company's financial stability than a rising payout in a weak market (so long as it's sustainable, of course). DuPont has increased its dividends twice in the last two years, but its payouts did not change from 2007 all the way through 2012. The last time United Technologies failed to increase its dividend was in 1994. This one goes to the defense contractor.

Winner: United Technologies, 1-1

Round three: power
It's not that hard to commit to paying back shareholders, but are these payments enticing or merely token? Let's take a look at how both companies have maintained their dividend yields over time as their businesses and share prices have grown:

DD Dividend Yield Chart

DD Dividend Yield data by YCharts.

Winner: DuPont, 2-1

Round four: strength
A stock's yield can stay high without much effort if its share price doesn't budge, so let's take a look at the growth in payouts over the past five years. If you bought in several years ago and the company has grown its payout substantially, your real yield is likely much better than what's shown above:

DD Dividend Chart

DD Dividend data by YCharts.

Winner: United Technologies, 2-2.

Round five: flexibility
A company needs to manage its cash wisely to ensure that there's enough available for tough times. Paying out too much of free cash flow in dividends could be a warning sign that the dividend is at risk, particularly if business weakens. This next metric analyzes just how much of their free cash flows our two companies have paid out in dividends:

DD Cash Div. Payout Ratio TTM Chart

DD Cash Div. Payout Ratio TTM data by YCharts.

Winner: United Technologies, 3-2

It came down to the wire, as we might have expected. Somewhat surprisingly, the defense contractor pulled ahead at the last minute with a more sustainable free-cash-flow payout ratio, which has never been higher than DuPont's levels over the past five years. Do you agree with this assessment, or would you still prefer DuPont in your portfolio?

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  • Report this Comment On June 24, 2013, at 4:07 PM, funfundvierzig wrote:

    While DuPont may be second largest chemical company in the U. S. in revenues after Dow Chemical which dwarfs DuPont by many financial metrics, on the global economic scene, the much shrunken and shrinking DuPont is tiny.

    By 2008, DuPont was only the 10th largest chemical enterprise in the world in revenues, behind such giants as BASF (number one), Dow (#2), ExxonMobil Chemicals (#3), Bayer, SABIC, Lyondell, and others.

    DuPont's fall has been dramatic in the 21st century, sliced and diced by a misfiring Management, after enjoying practically all of the 20th century as the world's largest and leading chemical enterprise.

    Nothing currently or on the horizon suggests DuPont will turn up from its long-time downward glide-path. Where are the "growth engines", which drive income and dividend appreciation?

    ...funfun..

  • Report this Comment On June 24, 2013, at 4:12 PM, funfundvierzig wrote:

    Looking too intensely only at dividend yield in the case of DuPont may be myopic for an investor. Over the past 15 years, the total return for long-term investors in the moribund shares of this struggling conglomerate is only about 16%, including dividends. That is circa 1% per year, nothing to write home about.

    DuPont is clearly not a WINNER, but a pronounced LOSER.

    Merely the opinion of one individual retail investor with both long and short positions in DD. ...funfun..

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