For nearly four decades, Illinois Tool Works (NYSE:ITW) has done what only a handful of stocks has managed to accomplish over such a long period: raise its dividend every single year. That streak earned Illinois Tool Works its place among the Dividend Aristocrats, which features the few dozen stocks that have managed to put together at least 25 consecutive years of annual dividend increases.

What's remarkable about the resiliency of Illinois Tool Works' dividend record is that the company is exposed to the cyclical nature of the economy. Being able to weather multiple downturns over the decades while still keeping payouts on the rise is a big feat, and in fact, the company earns more than enough to support even larger dividend hikes than it has made in the recent past. Let's take a closer look at Illinois Tool Works to see whether it's likely to be able to sustain or even improve on its dividend growth.

Dividend Stats on Illinois Tool Works

Current Quarterly Dividend Per Share

$0.42

Current Yield

2.4%

Number of Consecutive Years With Dividend Increases

39 years

Payout Ratio

30%

Last Increase

September 2013

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

Why is Illinois Tool Works doing so well?
Illinois Tool Works has put up an enviable performance record over the years by adapting to changing needs and offering products to meet customer demand. The company makes a variety of different products, serving a diverse set of industries ranging from arc-welding equipment for industrial use and plastic and metal components for the transportation sector to food processing and refrigeration equipment for the restaurant and food-services business. With roughly 20,000 patents in place, Illinois Tool Works has demonstrated its ability to innovate in many areas.

Yet that breadth of experience hasn't led to perpetual strength for Illinois Tool Works. In just its most recent quarter, the company posted weaker than expected earnings, as even a big jump in sales related to the auto industry wasn't enough to offset overall sluggishness in most of its other industrial segments. Earnings fell more than 10% from year-ago levels, and the company cut its earnings guidance for the full year by a nickel per share.

Still, in many ways, Illinois Tool Works' diversification works in its favor. For instance, the food-services sector has suffered from weak financial conditions for a while, and Manitowoc (NYSE:MTW), which also sells food-service equipment, hasn't done much better than Illinois Tool Works in boosting its revenue. Even food-services giant Sysco (NYSE:SYY) reported disappointing results last month, as revenue growth lagged behind what investors had hoped to see and margins fell. Yet because food services only makes up about 11% of Illinois Tool Works' overall sales, it can survive a shortfall there as long as it sees strength in at least part of its overall business.

ITW Dividend Chart

Illinois Tool Works Dividend data by YCharts.

Illinois Tool Works has posted consistent dividend growth over the years, with occasional jumps corresponding to periods of heightened economic activity. Yet with its most recent dividend increase topping the 10% mark, the company certainly has shareholders' interest in mind.

When will Illinois Tool Works boost its payout?
With Illinois Tool Works just having raised its dividend, investors shouldn't expect more increases until a year from now. Nevertheless, with just a 30% payout ratio, Illinois Tool Works has room to expand its dividend payments quite a bit in the years to come, even if expected earnings growth doesn't materialize at the rate shareholders would like to see. Having that margin of safety is a key component of Illinois Tool Works' dividend success over the decades and should continue to serve investors well in the future.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Illinois Tool Works and Sysco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.